Month: March 2010

The Cable has crumbled below its highly psychological 1.50 level and has undergone a huge selloff after a poll this weekend showed that the UK election is nearly a dead heat.  Investors are worried that a balanced parliament may not be able to tackle the fiscal and economic situations facing the UK.  This uncertainty drove the Cable lower and the Pound is clearly experiencing a relative weakness due to a surge in the EUR/GBP.  The Cable is now recovering from intraday lows even though the psychological blow has been dealt.  Investors clearly fear that debt issues in the EU could show up in the UK and the Pound is getting punished in succession.  On the bright side, the UK’s Manufacturing PMI printed slightly above analyst expectations and Net Lending to Individuals registered a surprising pop.  The increase in net lending is a very welcome development since the BoE has been harping on the banks to lend out some of their cheap liquidity to individuals in order to jumpstart the UK economy.  Hence, today’s trading session does carry a silver lining.  Meanwhile, investors are waiting on America’s Manufacturing PMI.  Should the U.S. number print weaker than expected, investors may continue to keep the Cable above intraday lows due to relative economic weakness in America.  However, a strong data point could place further downward pressure on the Cable for the opposite reason.   Activity will only head up as the trading week progresses.  The RBA will make its rate decision tomorrow and the UK will release its Halifax HPI and Construction PMI data.  Should the RBA hike its benchmark rate, this could help the risk trade across the board in anticipation of an improving global economic landscape.  However, inaction or a cut by the RBA could yield the opposite.

Technically speaking, we’ve formed some new uptrend lines for the Cable to compensate for today’s selloff.  Our uptrend lines run through 4/30/2009 levels, or the 1.47-1.48 area.  Hence, the Cable could continue to have support around this area over the near-term.  Meanwhile, it will be interesting to see whether the currency pair can manage to climb back towards its highly psychological 1.50 level, now serving as a technical barrier.  As for the topside, the Cable faces multiple downtrend lines and has an uphill battle.

Present Price: 1.4931

Resistances: 1.4942, 1.4974, 1.4997, 1.5038, 1.5071, 1.5112

Supports: 1.4877, 1.4850, 1.4822, 1.4799, 1.4767

Psychological: 1.50

(click to enlarge)

Market Commentary provided by Fast Brokers.

Disclaimer: FastBrokers’ market commentary is provided for information purposes only and under no circumstances should be regardedneither as an investment advice nor as a solicitation or an offer to sell/buy any financial product. FastBrokers assumes no responsibility or liability from gains or losses incurred by the information herein contained.

Risk Disclosure: There is a substantial risk of loss in trading futures and foreign exchange. Please carefully review all risk disclosure documents before opening an account as these financial instruments are not appropriate for all investors.

The EUR/USD has experienced a sizable down bar on the 4-hour amid a vicious sell-off in the Pound.  A poll released yesterday revealed that the UK election is a dead heat, drawing skepticism about whether the government will be able to tackle its fiscal woes with a hung parliament.  Uncertainty has now bled over into the UK, drawing the EUR/USD lower since there are still major problems in the EU.  Merkel is sticking to her guns by stating that Greece needs to take care of its own problems, reigniting uncertainty regarding whether Germany would in fact help bail out Greece should the situation call.  However, the EUR/USD is holding up relatively well considering today’s pandemonium in the Pound.  The Euro’s relative strength is reflected by a huge move higher in the EUR/GBP.  Additionally, the EU’s headline Unemployment Rate printed at 9.9%, two basis points below analyst expectations.  Solid EU employment data coupled with weak U.S. pricing data has allowed the EUR/USD to hold above its psychological 1.35 level and 2/25 lows.  Meanwhile, investors are waiting on America’s ISM Manufacturing PMI data.  Should the PMI number come in below analyst expectations investors may lift the EUR/USD.  However, a strong figure could weigh the EUR/USD lower amid excitement over an improving U.S. economy.  We’ve got a slew of central bank meetings this week, beginning with the RBA during tomorrow’s Asia trading session.  The EU will follow with its CPI Flash Estimate later in the session.  Should the RBA tighten, this could help buoy the risk trade across the board in anticipation of an improving global economic environment.

Technically speaking, the EUR/USD still faces multiple downtrend lines along with 2/26, 2/23, and 2/17 highs.  As for the downside, the EUR/USD has several uptrend lines (off chart) serving as technical cushions along with 2/19 lows.  Furthermore, the psychological 1.35 area could continue to have an impact on price movements.

Present Price: 1.3534

Resistances: 1.3546, 1.3572, 1.3599, 1.3634, 1.3654, 1.3676

Supports:  1.3516, 1.3493, 1.3460, 1.3440, 1.3420, 1.3394, 1.3377

Psychological: February lows, 1.35

(click to enlarge)

Market Commentary provided by Fast Brokers.

Disclaimer: FastBrokers’ market commentary is provided for information purposes only and under no circumstances should be regardedneither as an investment advice nor as a solicitation or an offer to sell/buy any financial product. FastBrokers assumes no responsibility or liability from gains or losses incurred by the information herein contained.

Risk Disclosure: There is a substantial risk of loss in trading futures and foreign exchange. Please carefully review all risk disclosure documents before opening an account as these financial instruments are not appropriate for all investors.

Deflation is more than just “falling prices.” Robert Prechter explains why.

By Editorial Staff

The following article is an excerpt from Elliott Wave International’s free Club EWI resource, “The Guide to Understanding Deflation. Robert Prechter’s Most Important Writings on Deflation.”

The Primary Precondition of Deflation
Deflation requires a precondition: a major societal buildup in the extension of credit. Bank credit and Elliott wave expert Hamilton Bolton, in a 1957 letter, summarized his observations this way: “In reading a history of major depressions in the U.S. from 1830 on, I was impressed with the following: (a) All were set off by a deflation of excess credit. This was the one factor in common.”

“The Fed Will Stop Deflation”
I am tired of hearing people insist that the Fed can expand credit all it wants. Sometimes an analogy clarifies a subject, so let’s try one.

It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing Jaguar automobiles and providing them to as many people as possible. To facilitate that goal, it begins operating Jaguar plants all over the country, subsidizing production with tax money. To everyone’s delight, it offers these luxury cars for sale at 50 percent off the old price. People flock to the showrooms and buy. Later, sales slow down, so the government cuts the price in half again. More people rush in and buy. Sales again slow, so it lowers the price to $900 each. People return to the stores to buy two or three, or half a dozen. Why not? Look how cheap they are! Buyers give Jaguars to their kids and park an extra one on the lawn. Finally, the country is awash in Jaguars. Alas, sales slow again, and the government panics. It must move more Jaguars, or, according to its theory — ironically now made fact — the economy will recede. People are working three days a week just to pay their taxes so the government can keep producing more Jaguars. If Jaguars stop moving, the economy will stop. So the government begins giving Jaguars away. A few more cars move out of the showrooms, but then it ends. Nobody wants any more Jaguars. They don’t care if they’re free. They can’t find a use for them. Production of Jaguars ceases. It takes years to work through the overhanging supply of Jaguars. Tax collections collapse, the factories close, and unemployment soars. The economy is wrecked. People can’t afford to buy gasoline, so many of the Jaguars rust away to worthlessness. The number of Jaguars — at best — returns to the level it was before the program began.

The same thing can happen with credit.

It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing credit and providing it to as many people as possible. To facilitate that goal, it begins operating credit-production plants all over the country, called Federal Reserve Banks. To everyone’s delight, these banks offer the credit for sale at below market rates. People flock to the banks and buy. Later, sales slow down, so the banks cut the price again. More people rush in and buy. Sales again slow, so they lower the price to one percent. People return to the banks to buy even more credit. Why not? Look how cheap it is! Borrowers use credit to buy houses, boats and an extra Jaguar to park out on the lawn. Finally, the country is awash in credit. Alas, sales slow again, and the banks panic. They must move more credit, or, according to its theory — ironically now made fact — the economy will recede. People are working three days a week just to pay the interest on their debt to the banks so the banks can keep offering more credit. If credit stops moving, the economy will stop. So the banks begin giving credit away, at zero percent interest. A few more loans move through the tellers’ windows, but then it ends. Nobody wants any more credit. They don’t care if it’s free. They can’t find a use for it. Production of credit ceases. It takes years to work through the overhanging supply of credit. Interest payments collapse, banks close, and unemployment soars. The economy is wrecked. People can’t afford to pay interest on their debts, so many bonds deteriorate to worthlessness. The value of credit — at best — returns to the level it was before the program began.

Jaguars, anyone?

By Russell Glaser – A technical analysis of the 4-hour EUR/USD shows that over the past 28 hours, the pair has been trading in a bearish channel.

We can use the new high from Friday’s trading session as the upper limit of the channel and the old trend line that has been broken as the lower border of the channel. Both lines begin on January 26th (not shown).

We can see the price made contact with the upper line twice; once at the origination and the second time today at near 8:00am GMT. The price has also made contact with the previous trend line twice, failing to significantly breach this support level.

Previously broken trend lines should not be forgotten. They can be used in the future as support and resistance lines in the new trend.

We can also see a declining slope on the MACD histogram, indicating a weakening short term uptrend.

Traders may want to initiate buy positions from sell positions from the upper border of the channel with limit orders to take profit at the lower border of the channel.

Major resistance and support lines have been marked at 1.3680 (Feb 26th high) and 1.3470 (Feb 25th low).

Forex Market Analysis provided by Forex Yard.

© 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

After a week which was mostly characterized with the halt of the Dollar’s bullish trend, a hefty news week is impending. Australia, Canada, Great Britain and the Euro-Zone will all publish their monthly Interest Rates desiccations. And on top of it all, the U.S. Non-Farm Payrolls is expected on Friday. This means that an extremely volatile week is expected that holds plenty of unique opportunities to make irregular profits.

Economic News

USD – Dollar’s Bullishness is halted

The Dollar dropped against most of the major currencies during last week’s trading session. After several weeks of bullish trends, the Dollar saw a bearish correction against the Euro and the Yen.

The Dollar’s fall from last week came as a result of several disappointing economic publications. The U.S. Consumer Confidence dropped from 56.5 on January to 46.0 on February, expressing a decline in U.S. citizens regarding their financial security. In addition, both the New Home Sales and the Existing Home Sales have unexpectedly dropped in January. This has proved that the housing sector in the U.S. is not fully recovered yet. Considering that the U.S. housing sector was the trigger for the global crisis, investors tend to take this data very seriously, and when a batch of disappointing indicators are being published, it usually weakens the Dollar.
For conclusion, after several weeks of positive economic data from the American economy, a less fortunate week has halted the Dollar’s bullish trend. However, if the economy will deliver recovery signals again, the Dollar is likely to recover as well.

Looking ahead to next week, the U.S. Non-Farm Employment Change report is expected on Friday. This is one of the most impacting publications in the market that tends to create heavy volatility. Traders should also follow the ADP forecast for this report, which is published on Wednesday. This forecast is considered to be quite reliable, and thus has a large impact on the market as well.

EUR – Interest Rates Announcement Expected on Wednesday

The Euro rose against most of the major currencies last week. The Euro’s most notable rise was against the Pound, as the pair gained over 200 pips. The Euro also halted its drop against the Dollar, and the EUR/USD pair is currently traded around the 1.3630 level.

The Euro’s rising trend came mostly due to speculations regarding a Greece bail-out plan by the Euro-Zone. The Euro was boosted following a statement by the French Finance Minister Christine Lagarde, who said that European governments are studying ways to assist Greece. This has increased risk appetite, and as a result boosted the Euro. Another reason for the Euro’s appreciation was the positive data from the German economy. The unemployment in Germany rose by 7,000 people in February, beating expectations for an 18,000 rise. In addition, the German Consumer Climate report showed that German citizens have more confidence in their financial outlook. Germany has the strongest economy in the Euro-Zone, and thus positive data from the German economy usually support the Euro.

As for the week ahead, the most interesting data from the Euro-Zone looks to be the Minimum Bid Rate on Thursday. The Minimum Bid Rate is in fact the European Interest Rates announcement for March. Current expectations are that the European Central Bank (ECB) will leave rates at 1.00%. However, if the ECB will surprise and hike rates, this has the potential to boost the Euro further

JPY – Yen Rises on All Fronts

The Yen rose against all the major currencies during last week’s trading session. The Yen gained about 300 pips against the Dollar, about 400 pips against the Euro and over 700 pips against the Pound!

A series of positive data from the Japanese economy have led to the Yen’s bullish trend. The Japanese Trade Balance showed that difference between imported and exported in Japan rose to 0.73T. This has an immense impact on the Yen, especially because the Japanese economy relies greatly on its exports. Investors have saw this publication as a strong indication that the Japanese economy is recovering, and thus boosted the Yen. In addition, the Japanese Retails Sales rose by 2.6% during January, beating expectations for a 0.1% drop. This is another indication that the Japanese economy has pulled out of recession, and creating speculations that an interest rates hike might be impending. Currently it seems that for as long as the Japanese economy continues to deliver positive data, the Yen is likely to strengthen further.

As for this week, traders are advised to follow the significant news publications from the Japanese economy such as the Household Spending, the Unemployment Rate, the Average Cash Earning and the Capital Spending, as they are likely to determine the Yen’s direction for this week.

Oil – Crude Oil is trading above $80 a Barrel

Crude oil continued to rose during last week’s trading. As the trading week began, crude oil was traded for about $78.00 a barrel and after a jumpy session, crude oil was boosted, and by Friday oil was traded for over $80 a barrel.

Crude oil rose on threats by Iran, claiming that it could cut off energy supplies to the Euro-Zone. The threats were given due to Iran’s controversial nuclear program. The tension in the Middle-East is usually a catalyst for rising energy prices, and news headlines regarding the Iranian nuclear plan conflict are likely to boost prices of crude oil. Another reason for the rising oil is the drop of the Dollar. The Dollar fell against most of the major currencies during last week. Oil is traded in Dollars, and thus when the USD drops, crude oil usually rises in response.

Looking ahead to this week, traders are advised to continue following the major publications from the U.S. and the Euro-Zone, as they are likely to impact the prices of crude oil the most. Traders should also follow the U.S. Crude Oil Inventories report on Wednesday, as this usually has an immediate impact on the market.

Technical News

EUR/USD

The 4-hour chart is showing mixed signals with its RSI fluctuating in neutral territory. However, the daily chart’s RSI is already floating in the over-sold territory indicating that a bullish correction might take place in the nearest future. When the upward breach occurs, going long with tight stops appears to be the preferable strategy

GBP/USD

There is a very accurate bearish channel forming on the daily chart as the pair is now floating in the middle. However, the pair currently sits near the bottom border of the hourly chart’s RSI, suggesting an upward correction may be imminent. If an upwards breach occurs, going long might be a good choice.

USD/JPY

The hourly chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, there is a fresh bullish cross on the daily chart’s Slow Stochastic indicates that an uptrend correction might take place in the nearest future. When the upwards breach occurs, going long with tight stops appears to be preferable strategy

USD/CHF

The bullish trend is losing steam and the pair seems to be consolidating around the 1.0748 level. The daily chart’s RSI is already floating in the over-bought territory suggesting that the recent upwards trend is losing steam and a bearish correction is impending. Going short with tight stops appears to be a preferable strategy.

The Wild Card

Oil

Oil prices rose significantly in the last week and peaked near $80 a barrel. However, the daily chart’s RSI is floating in the over-bought territory, suggesting that the recent upwards trend is losing steam and a bearish correction is impending. This might be a good opportunity for forex traders to enter the trend at a very early stage.

Forex Market Analysis provided by Forex Yard.

© 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.

The markets continued to gyrate this week, as investors remained fearful of issues related to European debt, specifically the debt related to Greece and Spain.  The Euro after facing heaving selling pressure mid week was able to bounce and finish up the week with a slight gain.  The S&P 500 Index also faced a large push to the downside but managed to climb higher to finish the week with a small loss.  With all the gyration in the market, the S&P 500 Index is having a difficult time with strong resistance – the 50 day moving average.

The first bit of news the markets needed to digest on Monday was that the Dutch government collapsed over the weekend as the Labor Party withdrew from the government as it refused to agree to the NATO request to extend Dutch troops stay in Afghanistan.  The spread between Dutch and German 2-year and 10-year bonds was flat Monday, suggesting no real market impact. It is the fifth Dutch government to falter since 2002.

On Tuesday, the equity markets were on the defensive as investors sold riskier assets after the conference board released a much worse than expected confidence number in the United States.  The S&P 500 index fell 13 points below 1100 to 1094.  Gasoline dropped 5 cents per gallon or 2.4%, and the dollar strengthened against most major currencies.

The confidence number took the markets by surprise.  The Conference Board, a private research group, said its index of consumer confidence declined to 46.0 this month, from a revised 56.5 in January. The February reading was far below the 54.8 expected by economists. The present situation index, a gauge of consumers’ assessment of current economic conditions, fell to 19.4 this month from 25.2 in January. The February index was the lowest in 27 years.  Consumer expectations for economic activity over the next six months dropped to 63.8 from a revised 77.3, the original was 76.5.

In other economic news, according to the S&P Case-Shiller home-price indexes, U.S. home prices fell in December but were up when adjusted for seasonal factors, , as yearly declines continued to ease.  For the fourth quarter, the S&P Case-Shiller U.S. National Home Price Index posted a 2.5% decrease from a year earlier, a significant easing from the 19%, 15% and 8.7% declines in the rest of 2009. It fell 1.1% sequentially but rose 1.6% adjusting for seasonal factors.  The indexes showed prices in 10 major metropolitan areas fell 2.4% in December from a year earlier, while the index for 20 major metropolitan areas dropped 3.1%. Both indexes dropped 0.2% from the previous month, although adjusted for seasonal factors, they increased 0.3%.

The markets presented a positive session on Wednesday despite dovish comments from Ben Bernanke.   In his semi -annual testimony before congress, Federal Reserve Chairman Ben Bernanke said the U.S. economy still needs record-low interest rates for several months as the economic recovery is expected to be slow.  In his testimony to the House Financial Services Committee, the Fed chief said the U.S. central bank is actively looking at what tools to use once the economy needs higher rates.  Market participants celebrated the news that rates would continue to be low for an extended period of time.

Also of note, The Securities and Exchange Commission voted 3-2 Wednesday in favor of a final rule that will curb short selling for individual securities that decline at least 10% in a single day.  The vote brings an end to almost a year of debate over the practice, in which investors attempt to profit by selling borrowed shares of a stock that is losing value.

Also on Wednesday, U.S. sales of new homes fell 11.2% in January, setting a record low and erasing all gains in the market for new homes during the past year. Demand for single-family homes fell 11.2% from the previous month to a seasonally adjusted annual rate of 309,000, according to the Commerce Department.  Economists surveyed had estimated sales would rise 3.8%, to 355,000. It was the third drop in a row. Sales in December fell 3.9%, revised from an originally reported 7.6% decline. The new-home sales report is volatile because it is based on a particularly small sample. The government said it was 90% confident that the true change in new-home sales in January was between minus 25.2% and plus 2.8%. The 11.2% decrease carried sales to their lowest level since records began in 1963.

On Thursday, European news came into the spot light Moody warned that it might lower its credit rating on Greece within a month, if the Greek government misses its March fiscal targets.  Moody’s credit rating, at A2, is already two notches above that of S&P (currently BBB+) which warned yesterday of a potential Greek downgrade within the month.  A Moody’s downgrade would put the credit rating at the lowest investment grade before speculative grade. Even though the Euro presented a volatile session it bounced back at the end of the trading session after testing recent lows at $1.3450.

Weekly jobless claims in the U.S were also disappointing adding to the view that the outlook remains uncertain.  Claims jumped unexpectedly to 496K (460K expected and vs. 474K in the prior week).  The Labor Dept said the jump was due in part to a backlog of claims in the Mid-Atlantic States and New England following the recent storms.  The four week average came out at 473K- a high number but still an improvement over the 513K averaged before the start of the holiday period in late November.

On Friday, Gross domestic product rose at a 5.9% annual rate October through December; the fastest rate since the third quarter of 2003. GDP expanded by 2.2% in the third quarter of 2009. A month ago, the department first estimated that GDP ,rose by an annual 5.7% in the fourth quarter.  For all of 2009, GDP declined an unrevised 2.4%, which was the largest full-year contraction since the 10.9% drop in 1946. The economy expanded 0.4% in 2008 and 2.1% in 2007.

Forex

The British pound was under pressure most of the week and was hurt by the largest drop in UK business investment on record and concerns about a double dip recession. Business investment fell -5.8% q/q in Q409 vs. a consensus forecast for a 0.1% increase and vs. a downwardly revised -1.8% drop in Q309 (from -0.6%.) Adding to concerns about recession, the London Chamber of Commerce survey showed that 47% of companies expect the economy to dip back into recession with only 29% predicting a lasting recovery. While UK Q409 GDP was revised higher to 0.3% q/q (vs +0.2% expected and from an initial estimate at +0.1%) there are several negatives for the pound:

1) The upward revision in Q4 followed a downward revision in Q3 and growth throughout H209 was actually flat.

2) The upward revision in government spending boosted the overall figure and this is bad news for public finances prospects and is not sustainable.

3) Early indicators for Q110 have not been particularly promising, with the poor weather likely to bring an additional negative bias to the growth profile early this year.

The UK economy has contracted by nearly 5% in 2009, but the recovery will be very sluggish in 2010, with a 1.2% sub-trend growth rate. From a technical point of view the GBP/USD broke double support and headed lower. Friday’s session presented a doji candlestick, showing traders uncertainty going forward.

In Japan negative CPI readings are not a thing of the past: the Tokyo February CPI y/y rate was reported at -1.8% y/y (not as bad as the -2% expected outcome and from -2.1%) while the nationwide January inflation rate ran at -1.3% y/y (from -1.4%), with core CPI unchanged, at -1.2%. Continued weakness in the consumer sector (hardly a surprise at a time of struggling labor market and depressed real disposable income) was highlighted by the January large retailers’ sales (reported at a worse than expected -5.6%), but retail trade was up by a larger than expected 2.9% on the month. The USD/JPY collapsed throughout the week but managed to find support around 88.90 points. The move lower disappointed investors, hoping for a change of trend. To date the bias is still negative for the USD/JPY and a break of support could lead this pair to its prior low.

Daily Forex Market Analysis provided by eToro

Disclaimer: Trading in the Foreign Exchange market might carry potential rewards, but also potential risks. You must be aware of the risks and are willing to accept them in order to trade in the foreign exchange market. Don’t trade with money you can’t afford to lose.

© 2009 eToro Blog.