Month: July 2010

Source: ForexYard

Due to renewed concerns regarding the Euro-Zone’s debt crisis and due to the beginning of earning season in the U.S, the Dollar slightly strengthened against the Euro yesterday. However, what will determine the direction of the Dollar today is likely to be the economic data which is expected from the U.S. and the Euro-Zone, especially the U.S. Trade Balance report. Will the Dollar see another day of rising trend?

Economic News

USD – Dollar Strengthens As Second-Quarter Earnings Season Begins

The Dollar rose against most of its major counterparts during yesterday’s trading session. The Dollar strengthened against the Euro and the Pound, and the GBP/USD pair dropped to the 1.4950 level.

The Dollar gained against most of the major currencies as renewed concerns regarding European debts drove investors to look far safer assets such as the Dollar and the Yen. In addition, the start of the U.S. second-quarter earning season has supported the Dollar as well. There is currently pessimism about corporate outlooks as U.S. companies begin reporting second-quarter results this week. The combination of concerns regarding the economic condition of several Euro-Zone nations, combined with the pessimism in U.S. corporations’ profits has reduced risk appetite in the market. This was concluded with modest gains for the Dollar.

Looking ahead to today, many interesting publications are expected from the U.S. economy. The report which might have the strongest impact on the market seems to be the Trade Balance. The Trade Balance measures the difference between imported and exported goods and services. Analysts have forecasted that the U.S. trade deficit has narrowed to 39.3B during May, from 40.3B on April. If the end result will beat expectations, the Dollar could rise further. In addition, traders are advised to follow the Federal Budget Balance. Current expectations are that the federal government’s deficit narrowed to 70.0B on June, from 135.9B on April. If the actual result will be similar, the Dollar might strengthen as a result.

EUR – Euro Tumbles on Concerns Stress Tests Won’t Ease Investors

The Euro weakened on Monday against most of the major currencies. The Euro dropped against the Dollar and the Pound and saw a 100 pips loss against the Yen, as the EUR/JPY pair fell to the 111.20 level.

The Euro dropped yesterday on speculations that tests that are made to demonstrate the resilience of the Euro-Zone’s banking system will fail to ease investors. The biggest concerns regarding the stress tests results appear to be about the transparency of the data. Investors fear that they will not receive the details that they’re looking for. This boots the already high uncertainty that exists in the markets, and turns investors to look for safer assets, such as the Dollar and the Yen. The main issue continues to evolve around the Euro-Zone’s debt problems. It seems that until investors will receive solid data to believe that economies such as Greece and Spain will manage to recover, the Euro might see further bearishness.

As for today, a batch of data is expected from the Euro-Zone. The most intriguing economic publications will probably be the German ZEW Economic Sentiment which is scheduled for 09:00 GMT. It is a survey that asks German institutional investors to rate the next 6-month economic outlook for Germany. Analysts have forecasted that the German Economic Sentiment has dropped in June to 25.2 from 28.7 on May. If the actual result will be similar, this will mark the third consecutive drop of this survey, and has potential to weaken the Euro further.

JPY – Yen Rises as Risk Aversion Increases

The Yen rallied yesterday against most of the major currencies. The Yen gained about 70 pips against the Dollar and about 120 pips against the Euro and the Pound, correcting some of last week’s losses.

The Yen strengthened yesterday on concerns that the Euro-Zone’s deficit may worsen. There are speculations that the stress tests that are made to check the European banking system’s condition will lack to deliver all the required data, and as a result will fail to assure investors. This has reduced risk appetite in the market, and has supported the Yen, which is considered to be a relatively safe asset. It currently seems that for as long that the Euro-Zone will fail to deliver recovering signals, and for as long that the U.S. economy will provide negative data, the Yen might appreciate further.

Looking ahead to today, the Yen will be absent from the economic calendar. Traders are advised to follow Japanese equity markets as they are highly correlated with Yen movements. Traders should also follow the main publications from the U.S. and the Euro-Zone as negative data has potential to boost the Yen further.

OIL – Crude Oil Drops To $75.50 a Barrel

Crude oil tumbled during yesterday’s trading session. Crude oil began this week’s trading at $76.30 a barrel. However on Monday oil saw a sharp drop and a barrel of oil was traded at a daily low of $74.50.

The main reason for the depreciation of crude oil seems to be the strengthening Dollar. Crude oil is valued in Dollars, and thus whenever the Dollar strengthens, crude oil tends to fall as a result. In addition, the renewed concerns regarding the Euro-Zone’s debt crisis have created speculations about a reduced demand for energy, which also weighed on crude oil.

As for today, traders are advised to follow the main publications from the U.S. and the Euro-Zone, as they tend to have a large impact on crude oil trading. Traders should pay attention to the U.S. Trade Balance report and the German ZEW Economic Sentiment, as these publications look to have the largest affect on the market today.

Technical News

EUR/USD

The price of this pair appears to be floating in the over-bought territory on the daily chart’s RSI indicating a downward correction may be imminent. The downward direction on the hourly chart Slow Stochastic also supports this notion. When the downwards breach occurs, going short with tight stops appears to be preferable strategy

GBP/USD

The 4-hour chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, there is a fresh bearish cross forming on the hourly chart’s Slow Stochastic indicating a bearish correction might take place in the nearest future. Going short might be a wise choice.

USD/JPY

The pair is floating at the key level of 88.55, which is a very strong support level on the 4 hour chart. If the pair will manage to breach through that level, a much stronger bearish move is likely to break forth, with a target potential of 87.95. Going short with tight stops might be the right strategy today.

USD/CHF

There is a very distinct bearish channel forming on the 4H chart as the pair is now floating in the middle of it. A double doji formation on the daily chart is suggesting that another sharp movement is forthcoming. Traders should wait for the breach and swing.

The Wild Card

Crude Oil

This commodity is giving a strong bearish signal on the 4 H and hourly charts. The negatively sloped RSI and Momentum support this bearish notion. The Slow Stochastic is also giving a strong signal that this Crude’s next move will probably be bearish. Therefore this gives forex traders the perfect opportunity to catch an early downward correction on an 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.

A clear descending triangle pattern has developed on the daily chart of the USD/NOK and many analysts are now expecting a bearish breakout in the coming days. A descending triangle formation historically represents a bearish signal.

The chart shown below is the USD/NOK daily chart provided by ForexYard. Support and resistance lines are indicated by corresponding letters and numbers (R = resistance; S = support).

– We can see that the latest candlestick on the chart is a doji candlestick, which represents a reversal to the previous movement. This means we may expect a short uptick before any bearish breakouts can occur.

– The moment to watch for is the breakout beyond the lower level of the descending triangle. The price of 6.3200 marks this lower border.

– Below this price level we have a number of psychological barriers which may indicate profitable targets. The first support line sits at 6.2500, followed by 6.1500, and ending around 6.0600.

USD/NOK – Daily Chart

For more Scandinavian news, read my article “Swedish Currency in Position for Muted Gains.”

GBPUSD broke below the rising price channel on 4-hour chart and reached as low as 1.4948 level, suggesting lengthier consolidation of uptrend from 1.4346 is underway. Rang trading between 1.4873 and 1.5240 is expected in a couple of days. As long as 1.4873 support holds, price action from 1.5240 is treated as consolidation of uptrend and one more rise towards 1.5522 (Apr 15 high) is still possible.

Daily Forex Forecast

By Elliott Wave International

While many people spend time yearning for the financial markets to turn back up, a rare few have looked back in time to compare historical markets with the current situation — and then delivered a clear-eyed view of the future informed by knowledge of the past. One who has is Robert Prechter. When he thinks about markets and wave patterns, he goes back to the 1700s, the 1800s, and — most tellingly for our time now — the early 1900s when the Great Depression weighed down the United States in the late 1920s and early 1930s. With this large wash of history in mind, he is able to explain why he thinks we have a long way to go to get to the bottom of this bear market.

Here is an excerpt from the EWI Independent Investor eBook, which answers the question: How close to the bottom are we?
* * * * *
Originally written by Robert Prechter for The Elliott Wave Theorist, January 2009

Some people contact us and say, “People are more bearish than I have ever seen them. This has to be a bottom.” The first half of this statement may well be true for many market observers. If one has been in the market for less than 14 years, one has never seen people this bearish. But market sentiment over those years was a historical anomaly. The annual dividend payout from stocks reached its lowest level ever: less than half the previous record. The P/E ratio reached its highest level ever: double the previous record. The price-to-book value ratio went into the stratosphere, as did the ratio between corporate bond yields and the same corporations’ stock dividend yields.

During nine and a half of those years, from October 1998 to March 2008, optimism dominated so consistently that bulls outnumbered bears among advisors (per the Investors Intelligence polls) for 481 out of 490 weeks. Investors got so used to this period of euphoria and financial excess that they have taken it as the norm.

With that period as a benchmark, the moderate slippage in optimism since 2007 does appear as a severe change. But observe a subtle irony: When commentators agree that investors are too bearish, they say so to justify being bullish. Thus, as part of the crowd, they are still seeking rationalizations for their continued optimism, and one of their best excuses is that everyone else is bearish. This would be reasoning, not rationalization, if it were true.

But is the net reduction in optimism since 2000/2007 in fact enough to indicate a market bottom? For the rest of this issue, we will update the key indicators from Conquer the Crash that so powerfully signaled a historic top in the making. When we are finished, you will know whether or not the market is at bottom.

Figure 1 updates our picture of Supercycle and Grand Supercycle-degree periods of prosperity and depression. The top formed in the past decade is the biggest since 1720, yet, as you can see, the decline so far is small compared to the three that preceded it. There is a lot more room to go on the downside.

Figure 2 updates the Dow’s dividend yield. Over the past nine years, it has improved nicely, from 1.3 percent to 3.7 percent, near its level at previous market tops. If companies’ dividends were to stay the same, a 50 percent drop in stock prices from here would bring the Dow’s yield back into the area where it was at the stock market bottoms of 1942, 1949, 1974 and 1982. But of course, dividends will not stay the same.

Companies are cutting dividends and will cut more as the depression deepens. So, the falling stock market is chasing an elusive quarry in the form of an attractive dividend yield. This is a downward spiral that will not end until prices get ahead of dividend cuts and the Dow’s dividend yield goes above that of 1932, which was 17 percent (or until dividends fall so close to zero that the yield is meaningless).

Get the whole story about how much farther we have to go to a bear-market bottom by reading the rest of this article from EWI’s Independent Investor eBook. The fastest way to read it AND the six new chapters in EWI’s Independent Investor eBook is to become a member of Club EWI.

By Adam Hewison – The dollar index, which put in a strong performance in the
first six months of the year, pulled back from its recent highs and appears to be in defensive mode.

If you are not familiar with the US dollar index (USDX), it is an index, or measure, of the value of the United States dollar relative to a basket of foreign currencies.

Its weighted geometric mean of the dollar’s value is compared with these currencies in the following percentages:

* Euro (EUR), 57.6% weight
* Japanese yen (JPY), 13.6% weight
* Pound sterling (GBP), 11.9% weight
* Canadian dollar (CAD), 9.1% weight
* Swedish krona (SEK), 4.2% weight
* Swiss franc (CHF) 3.6% weight

In this short educational video, I point out what we see in the dollar index and the reason why we think a potential rally may be in the foreseeable future.

As always our videos are free to watch and there is no need for registration.

If you’d like to make a comment on this or any of our videos, we enjoy hearing your thoughts.

Watch the New Dollar Index Video Now….

All the best,

Adam Hewison
President of INO.com
Co-founder of MarketClub

By Fast Brokers – The USD/JPY is retreating after testing its psychological 89 level earlier in the wake of upper house elections.  The DPJ did worse than projected and confirmed Kan’s declining approval rating.  The DPJ’s disappointing showing means Kan must now forge a coalition in order to pass fiscal reforms aimed at reigning in Japan’s spiraling deficit.  Investors reacting by selling off the yen and S&P already warned that Japan is at risk of having its debt downgraded if parliament can’t pull together and pass effective measures cutting the budget deficit.  Speaking of which, parliament also rejected Kan’s proposal to double the consumption tax to 10%.  The veto could prove to be a step backward in the eyes of creditors and puts Kan in the hot seat with his re-election around the corner in September.  That being said, political uncertainty could continue to linger in Japan and keep the yen from appreciating too quickly.  However, the USD/JPY clearly faces many technical obstacles to the topside and this weekend’s upper house elections have not significantly altered the currency pair’s downward trajectory for the time being.  On a positive note, China’s trade balance revealed a larger surplus than anticipated, indicated export demand is healthy and China’s economy should continue to perform well despite government efforts to reign in real-estate prices.  Investors now turn their attention to Alcoa, which kicks off the U.S. earnings season after the bell today.  If U.S. earnings disappoint then this could weigh on the USD/JPY and risk trade as a whole as investors head towards the yen and dollar for safety.  That being said, we’ll have to see how earnings season materializes over the next week or two.  Japan will be quiet on the data wire tomorrow, though investors will receive key data points from the EU, UK, and U.S.

By Fast Brokers – Gold is easing back from Friday’s highs as the precious metal tried to hold above its highly psychological $1200/oz level.  Gold is still in the midst of a key technical battle as investors debate whether to keep the precious metal within the bounds of its medium-term uptrend line or send gold reeling towards a more protracted downturn.  Considering investor uncertainty is still sitting at an abnormally high level it currently looks like the bulls will win this battle.  Additionally, investors should also remember gold has the potential to lock back into its negative correlation with the greenback should the risk trade continue its broad-based recovery.  U.S. earnings season kicks off today, meaning the risk trade could be tested over the next week or two.  We’ve also got key data releases from around the globe disbursed through the week meaning markets could be approached a period of volatility.  Investors should keep a sharp eye on the FX markets and monitor the ability of the EUR/USD and Cable to hold onto their respective near-term uptrends.

By Fast Brokers – The Cable is bouncing nicely from intraday lows as the currency pair follows U.S. equities higher.  BP is trading higher by over 5% and is likely boosting the Pound with investors reacting positively to news that BP will liquidate some assets in order to account for the Gulf cleanup tab.  Meanwhile, although Britain’s final GDP printed in line with analyst estimates, the current account deficit came in much lower than anticipated.  The downturn in the current account reflects the large trade balance deficit we saw last week.  Hence, the downturn on the Pound has clearly taken its toll on consumption and imports which haven’t been offset by exports.  The news knocked the Cable below an uptrend line and its highly psychological 1.50 level, though the currency pair has regained most of its losses at this point.  Investors will now turn their attention to U.S. earnings with Alcoa kicking off the season after the bell.  The earnings season as a hint of uncertainty to it since investors are uncertain how much fiscal problems in the EU have impacted U.S. corporate performance.  If U.S. earnings disappoint then this could weigh on the Cable and risk trade as a whole.  The UK will release its key CPI figure tomorrow and it will be interesting to see if it remains above 3%.  If so, speculation could continue that the BoE is becoming a bit more hawkish in its monetary policy stance.  Hence, if the number prints higher than expectations then the Cable could shoot higher.  Meanwhile, if the CPI drops below 3% the Cable could take a near-term hit since part of the energy behind its drive higher was the recent vote for a 25bp hike in the benchmark rate.

Technically speaking, the Cable has multiple uptrend lines serving as technical cushions along with intraday lows and its highly psychological 1.50 level.  As for the topside, the Cable faces technical barriers in the form of 6/29 and 7/8 highs.
Present Price: 1.5045
Resistances: 1.5046, 1.5066, 1.5081, 1.5101, 1.5124, 1.5143, 1.5168
Supports: 1.5028, 1.5008, 1.4987, 1.4961, 1.4944, 1.4929, 1.4912
Psychological: 1.50, July highs and lows

(click chart to enlarge)

Market Commentary provided by Fast Brokers.

Disclaimer: FastBrokers’ market commentary is provided for information purposes only and under no circumstances should be regarded neither 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.

By Fast Brokers – The EUR/USD is extending Friday’s pullback and the currency pair is trying to bottom above its psychological 1.25 level as EU finance ministers meet to discuss their plans for revealing stress test results at the end of the month.  Details of the stress test are still vague, leaving investors a bit on edge ahead of the release.  The EUR/USD has responded by pulling back from monthly highs, though losses have been contained thus far.  Meanwhile, investors also reacting to a solid trade surplus result this weekend from China.  The figure indicates that China’s export sector has fully recovered from the crisis and the Yuan is appreciating slightly in reaction to the news.  While the trade surplus is normally a positive for the risk trade, imports revealed a decline in imports of iron ore and coal, hinting that China could be slowing.  Either way, the number is encouraging and allows the risk trade to remain within the bounds of its near-term uptrend.  The EU will contribute to the data wire again tomorrow by releasing economic sentiment figures.  Investors are expecting a decline in the German ZEW to 25.2.  Expectations for economic and investors sentiment have been lowered due to the fiscal crisis.  That being said, if the number tops estimates this could give a solid boost to the EUR/USD.  Meanwhile, U.S. earnings season will be kicking off with Alcoa after the bell.  If fiscal problems in the EU have had a large noticeably large negative impact on U.S. earnings then this could weigh on the EUR/USD and risk trade as a whole.  Hence, we can expect an active week as investors digest earnings and outlooks for the coming quarter.

Technically speaking, the EUR/USD faces technical barriers in the form of 7/6 and 7/9 highs.  As for the downside, the EUR/USD has supports in the form of intraday and 7/6 lows.  Additionally, the psychological 1.25 level could serve as a solid technical cushion should it be tested.

Present Price: 1.2572
Resistances: 1.2584, 1.2608, 1.2635, 1.2655, 1.2673, 1.2686
Supports:   1.2540, 1.2519, 1.2497, 1.2479, 1.2453, 1.2435
Psychological: July highs and lows, 1.25, 1.30

(click chart to enlarge)

Market Commentary provided by Fast Brokers.

Disclaimer: FastBrokers’ market commentary is provided for information purposes only and under no circumstances should be regarded neither 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.

By CountingPips.com

The latest Commitments of Traders (COT) data out on Friday showed that futures speculators pared their bets for the U.S. dollar against the euro as of July 6th, according to the COT data released by the Chicago Mercantile Exchange. Non-commercial futures positions, those taken by hedge funds and large speculators, were net short the euro against the U.S. dollar by -38,909 contracts after being net short the euro by -73,670 contracts the week before on June 29th. Euro short positions had fallen for two straight weeks before the July 6th turnaround.

The COT report is published every Friday by the Chicago Mercantile Exchange (CME) and shows futures positions as of the previous Tuesday. It can be a useful tool for traders to gauge investor sentiment and to look for potential changes in the direction of a currency or commodity. Each currency contract is a quote for that currency directly against the U.S. dollar, where as a net short amount of contracts means that more speculators are expecting that currency to fall against the dollar and net longs expect that currency to rise versus the dollar.

Other major currencies in addition to the euro that were net short in the CME futures market against the dollar as of July 6th were the British pound and the Swiss franc while the Australian dollar, New Zealand dollar, Japanese yen, Canadian dollar and Mexican peso all had a net long amount of contracts against the dollar.

The British Pound Sterling net shorts increased to -38,077  from a total of -34,771 that were reported net short on June 29th while the Swiss franc positions were net short -7,455 contracts after -12,848 net shorts the week before.

The New Zealand dollar futures positions edged higher on the long side with 2,577 long contracts this week after a total of 2,486 long contracts as of June 29th. The Japanese yen net long contracts increased to 37,926 as of July 6th following 27,427 net long contracts on June 29th. Investors have increased their yen positions for four straight weeks and reversed their yen positions substantially from being short by 65,612 contracts on May 4th.

The Australian dollar futures positions were net long by 7,246 contracts as of July 6th, falling lower after totaling net 12,854 long contracts on June 29 and down from a total of 80,674 net longs on April 13th.

The Canadian dollar long positions fell to net 8,094 contracts and after 15,894 net longs the week before while the Mexican peso long contracts decreased to 22,725 longs from 42,496 longs the prior week.

COT Data Summary (vs. the US Dollar) as of July 6th, 2010

Australian dollar net long on July 6 decrease to 7,246 contracts from 12,854
British pound sterling futures contracts were net short by -38,077 from -34,771
Canadian dollar net long contracts fell to 8,094 from 15,894
Euro net short positions declined to -30,909 from -73,670
Japanese yen net longs up to 37,926 from 27,427
New Zealand dollar longs increased to 2,577 from net long of 2,486 contracts on June 29
Mexican peso long contracts decreased to 22,725 from 42,496 on June 29
Swiss franc short contracts on July 6 were at – 7,455 from -12,848 on June 29

Go to the Commitment of Traders CME futures data