Month: November 2010

The US equities and bonds markets bounced back yesterday following the release of several encouraging economic reports. The rally in the markets occurred a day after a sell-off occurred due to the recent military conflict between North and South Korea. Traders initially found confidence when Germany’s business climate, as measured in the German Ifo business climate index, unexpectedly improved with the index rising to to 109.3 from 107.7. The index was initially seen to weaken to 107.6. Of course, this surprise came amid the current drama in Ireland which I will talk about in my next article so watch out for that!

Later, the buying gained more momentum when the latest initial jobless claims, which is the number of people who are applying for unemployment benefits from the state for the first time, in the US registered a much lower figure of 407,000 than the market’s 434,000 forecast. The previous week’s count was at 441,000. The market actually more weight on the improvement in the jobless claims versus the country’s durable goods orders which fell by 3.3% in October.Earlier in the week, data showed that the US economy grew by 2.5% against the 2.0% estimate during the third quarter due to higher consumption which can partially attributed to the gains in employee wages. Given these, its apparent the US economy is slowly picking up speed.

To the end of the day, the Dow jumped by 1.31% while the broader S&P 500 soared by 1.93%. The Nasdaq, similarly, gained  by 1.43% while the yield on the 10-year bond in the US closed higher by 0.1520 points to 2.9140%.

And oh… Happy Thanksgiving everyone!!!

More on LaidTrades.com …

By GCI Forex Research

Fundamental Outlook at 0800 GMT (EDT + 0400)

USD

The dollar firmed during the Asia session as speculation about further China tightening continued, and the recent confrontation on the Korean peninsula produced more headlines. Still, the greenback couldn’t rally against the CAD, which held onto all of yesterday’s gains after the price of crude jumped almost $3/bbl. EURUSD traded 1.3307-1.3371, USDJPY 82.94-83.62. However, Asian stocks managed to make some modest gains, after the S&P 500 finished 1.5% higher. US data showed a sharp drop in jobless claims, improving consumer confidence, strong household income, and accelerating real spending. Weakness in durable orders at the start of Q4 was attributed to possible distortions due to seasonal adjustment. Treasury yields rose across the curve, keeping USDJPY supported. Housing data were mixed, with mortgage applications rising but new home sales and home prices falling. Given the holiday today, the next US economic release of note will be Chicago PMI on Nov 30, followed by the US employment report and ISM data later in the week. Until then, Eurozone concerns will likely remain in focus and should keep EURUSD under pressure while any further risk-seeking should see the higher-beta G10 currencies gain versus the dollar.
EUR

ECB Governing Council member Weber conceded that the foundations of EMU have been strongly shaken, but that he sees no reason to doubt the euro’s future.
The Irish 4-year austerity plan was released and contained few surprises. Irish Prime Minister Cowen said that a bailout of EUR85 bn has been discussed with EU and IMF officials, though not yet agreed. Irish Finance Minister Lenihan reiterated that any financial assistance would be less than EUR100 mn. While a successful conclusion of negotiations on an aid package could help stem some of the recent euro downslide, it is difficult to see a more substantial euro recovery ahead of the budget vote, scheduled for Dec. 7.
The German Ifo numbers for November, while skewed to the upside, were broadly mixed. Our European economists note that although the core figures beat consensus and showed improvements versus the last readings, the widening gap between the current assessment and future expectations suggests that the slowdown in the German recovery may come later than expected. For the moment however, these readings are not driving the market and will continue to remain that way until an element of stability is restored to the peripheral bond markets. In other data, Eurozone industrial new orders were below consensus.
JPY

BoJ policy board member Nakamura said that the BoJ needs to continue watching FX moves and their impact. He offered a mixed outlook, saying that downside risks to Japan are somewhat stronger than upside risks, but that he expects the Fed’s latest easing to have a positive impact on the global economy.
NZD

MPC members King, Tucker, Dale, Posen and Sentance are due to appear before a parliamentary committee today. The simultaneous presence of the hawkish Sentance and the dovish Posen could make for some volatile price action in sterling around 1000 GMT.
The second estimate of Q3 GDP was in line with expectations of 2.8% y/y. The UK’s export sector showed strong performance of 2.2% q/q, which provides some evidence that a weaker sterling is benefiting the economy. Our economists see a slowdown in growth in the UK through Q4 and into Q1 of next year due to the fiscal consolidation measures feeding their way through to the system and the added effect of the upcoming VAT rate hike.

TECHNICAL OUTLOOK
EURUSD targets 1.3265.
EURUSD BEARISH Following the break of 1.3363, the pair now targets 1.3265. Resistance at 1.3634 ahead of 1.3786.
USDJPY BULLISH Stalled below 83.99; push through the level would expose 85.93. Initial support at 82.40 ahead of 81.66 reaction low.
GBPUSD BEARISH Next big support below 1.5650 is defined at1.5297. Resistance at 1.5965.
USDCHF BULLISH Stalled in front of 0.9998; beyond this the pair has room for a run towards 1.0183. Near-term support at 0.9829.
AUDUSD BEARISH Momentum is negative, the pair eyes 0.9652 ahead of 0.9542. Resistance at 0.9954 ahead of 1.0183.
USDCAD NEUTRAL Trading in a choppy manner within 1.0380 and 0.9931 range.
EURCHF BEARISH Pullback from 1.3674 eyes 1.3229 support, break of the level would expose 1.3072. Near-term resistance at 1.3488.
EURGBP BEARISH Push below 0.8449 exposes 0.8390 next. Initial resistance at 0.8543.
EURJPY BULLISH Break of 109.35 would expose 107.73 ahead of 105.44. Near-term resistance at 113.67.

Forex Daily Market Commentary provided by GCI Financial Ltd.

GCI Financial Ltd (”GCI”) is a regulated securities and commodities trading firm, specializing in online Foreign Exchange (”Forex”) brokerage. GCI executes billions of dollars per month in foreign exchange transactions alone. In addition to Forex, GCI is a primary market maker in Contracts for Difference (”CFDs”) on shares, indices and futures, and offers one of the fastest growing online CFD trading services. GCI has over 10,000 clients worldwide, including individual traders, institutions, and money managers. GCI provides an advanced, secure, and comprehensive online trading system. Client funds are insured and held in a separate customer account. In addition, GCI Financial Ltd maintains Net Capital in excess of minimum regulatory requirements.

DISCLAIMER: GCI’s Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be U.S.ed as investment advice. GCI assumes no responsibility or liability from gains or losses incurred by the information herein contained.

By Natalie R. – Following a bearish streak versus the CAD over the past few days, the AUD seems to be in the middle of a bullish correction. Forex traders are advised to take advantage of this knowledge by going long on AUD/CAD now.

Below is the 8 hour chart of EUR/CAD. The technical indicators are the RSI and the  Slow Stochastic

– A breach of the lower Bollinger Band is evident on the chart (1), indicating the upward correction that has begun still has room to continue.
– A bullish cross is evident on the Slow Stochastic (2), signaling the next move may be an upward correction.
– The RSI (3) signals that the price of this pair is currently floating in the oversold territory, suggesting upward pressure.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

Source: ForexYard

Britain and Japan appear to be releasing the bulk of today’s news as today is Thanksgiving Day in the U.S, and there is no economic data releases from the region today, which means we may see a day of trading with low liquidity and therefore increased volatility. Day-traders can take advantage of these intense trading days by swinging within the larger-than-normal price fluctuations.

Economic News

USD – Low Volatility Expected In Observance of U.S Thanksgiving Day

The U.S dollar rose broadly yesterday against most of its major currency pairs after data showed the number of U.S. workers filing for first-time jobless benefits slipped in the latest week, adding to hopes the job market is improving. By yesterday’s close, the USD rose against the EUR, pushing the oft- traded currency pair to 1.3340. The dollar experience similar behavior against the GBP and closed at 1.5780.

A leading indicator released yesterday was U.S. Unemployment Claims. The number of Americans filing first-time claims for jobless benefits dropped unexpectedly last week to the lowest in more than two years, another sign firings are slowing as the economy pulls out of the recession. The total number of initial claims fell to 407,000 last week from 441,000 claims filed the week before
As the U.S economy stabilizes, currency traders have started to focus more on fundamentals such as economic growth and short-term interest rates. That shift, just getting underway, could take the shine off the soaring USD in the coming months. A stronger currency is important to the U.S. because it entices foreign investors to Treasury debt that finances the nation’s record budget deficit. The downside is that it may restrain profit growth at companies with international sales by making U.S. exports more expensive.

With US banks celebrating Thanksgiving Day, the forex market will be experiencing thin trading today. Without this economic giants pumping liquidity into the market, most current trends will remain as they are for the next day or two, and traders can benefit by jumping into these trends before they finally come to an end.

EUR – EUR/USD Hits Two-Month Low

The EUR hits a two-month low against the dollar and yen on Wednesday as persistent worries over Ireland’s fiscal position fuelled risk aversion, prompting safe-haven flows into the low yielding Japanese currency and US dollar. By yesterday close, the euro fell as low as $1.3283, its weakest since September, and was last down 0.3% at $1.3325. The 16 nation currency experience similar behavior against the JPY and closed at 111.40.

Investors worried that a euro-zone fiscal crisis, centered for now on Ireland, could spread to other indebted countries, notably Portugal and Spain. Ireland’s four-year plan, announced Wednesday, to cut its budget by 15 billion euros did little to cheer the market.

Investors may look for the unusual price volatility to continue in the EUR/USD as the pair attempts to stabilize and find new support and resistance lines. The large price jumps such as these are not common place and present terrific opportunities to take advantage of the price swings for large gains.

JPY – JPY Sees Mixed Results versus the Majors

The Yen completed yesterday’s trading session with mixed results versus its major currency pairs as investors are choosing the Dollar over the Yen for a safe haven trade. The JPY fell against the USD and closed around 83.45. However; the Japanese Yen rose almost 100 pips versus the EUR, closing at 111.40.

Looking ahead to today, the news event that may have a very large impact on the JPY and its main currency pairs in today’s trading is the Tokyo Core CPI around 23:30 GMT. This report is likely to Impact the JPY volatility. Traders should pay close attention to the market as there is an opportunity for traders to capitalize on the fluctuations which are likely to follow this release.

Crude Oil – Crude Gains Close to 3%

Oil prices rose more than 3% on Wednesday as data that suggested economic recovery is improving and pre-Thanksgiving holiday short covering helped oil post its biggest percentage gain in four months.
Crude oil advanced today for the most in four months following a report showed that U.S. Unemployment Claims dropped to the lowest level since 2008, boosting optimism that the economic recovery will accelerate. Jobless claims declined by 34,000 to 407,000 in the week ended November 20, beating estimations for 434.000 unemployment applications.
Looking ahead to tomorrow, U.S. banks will be closed in observance of Thanksgiving Day. Traders are advised to follow the updates regarding the Irish debt crisis, as any development on this issue is likely to have a large impact on the market.

Technical News

EUR/USD

The EUR/USD cross has experienced a bearish trend for the past 3 days. However, it seems that this trend may be coming to an end. The RSI of the 4-hour chart shows the pair floating in the over-sold territory, indicating that an upward correction will happen anytime soon. Going long with tight stops might be a wise choice.

GBP/USD

The price of this pair appears to be floating in the over-sold territory on the 4-hour chart’s RSI indicating an upward correction may be imminent. The upward direction on the hourly chart’s Momentum oscillator also supports this notion. When the upward breach occurs, going long with tight stops appears to be preferable strategy.

USD/JPY

The USD/JPY cross has been experiencing much bullish behavior in the past 2 weeks. However, there is much technical data that supports a bearish move for today. The RSI of the daily chart indicates that the pair floats in the overbought territory, leading to the conclusion that a downward correction is imminent. Going short with tight stops may turn out to pay off today.

USD/CHF

The bullish trend is losing its steam and the pair seems to consolidate around the 0.9965 level. The daily chart’s RSI is already floating in an overbought territory suggesting that a recent upwards trend is losing steam and a bearish correction is impending. Going short with tight stops might be a wise choice.

The Wild Card

Crude Oil

Crude Oil prices rose significantly yesterday and peaked at $84.35 per barrel. However, there is a bearish cross on the 4-hour chart’s Slow Stochastic suggesting that a 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 ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

It was another pessimistic day for the euro yesterday!

Ireland’s Prime Minister Brian Cowen had hoped to restore market confidence in his nation’s finances by announcing the details of his planned austerity budget. These details included cutting public sector jobs by 25k and shrinking the welfare state by 14% – earning Cowen the wrath of not only Ireland’s political parties but the public too.

Yet the markets were not reassured! Economists were incredulous at projections that Ireland’s economy could grow against a background of sweeping cuts. In addition Ireland’s political future looks uncertain: parties including the Irish Greens have not pledged support for the austerity budget.

To make matters worse in the EU, the German Chancellor Angela Merkel has commented saying she intends to impose ‘bondholder haircuts’ on EU banks. This means that investors in EU banks could be forced to share the risk if the banks default so that they lose their investment.

This exacerbated market tensions in Ireland: The spread between Irish and German government bonds rose 600bps yesterday. In addition the Chancellor’s comments also sent shockwaves across other EU periphery nations: costs of bondholder insurance policies also rocketed in Portugal and Spain.

In short uncertainty inside the EU means selling pressure on the euro remains strong.

This is likely to continue until the political situation inside Ireland is resolved, and German intentions toward investors in EU banks become clear. In addition speculation remains rife that Portugal will soon require an EU-IMF bailout, and this is not improving confidence in the euro.

Elsewhere, in the UK the Official of National Statistics confirmed that the UK economy grew by 0.8% in the last quarter on the back of strong exports. This is heartening news and suggests that Britain is not heading toward a double dip recession.

However the market reaction to the announcement was moderate: commentators pointed out that until the coalition government’s spending cuts come into effect next year it is difficult to assess the state of the UK economy. Hence though the announcement boosted confidence in sterling the markets barely moved.

Yesterday was a quiet day for the US meanwhile as the markets prepared for today’s Thanksgiving Holiday. Although there will be no US economic announcements, with US markets closed we could see choppy trading conditions.

What can we expect tomorrow? For one the Germans are set to announce the November consumer price index figures. Strong figures are traditionally positive for the euro. However in the present political climate strong figures are likely to exacerbate the contrast between the German economy and those of EU periphery members. Hence good results could give Angela Merkel further incentive to impose ‘bondholder haircuts’ on investors, and worsen the EU crisis.

By Peter Lavelle at PureFX.co.uk

USDJPY’s fall from 83.84 can reach 82.78 only, the subsequent bounce has brought price to a trading range between 82.78 and 83.84. Now the price action in the range is more likely consolidation of uptrend from 80.30. A break above 83.84 resistance could indicate that the uptrend has resumed, then next target would be at 85.00 area. Key support is now at 82.78, only break below this level could indicate that the upward move from 80.30 is complete.

Daily Forex Signals

By James McKee

China has just announced a severe decrease in the amount of precious metals they will export to Japan and the western world. This spells out trouble for manufacturing of everything from wind power turbines to iPods. Many manufacturers are already attempting to cut down the amount of precious metals in their products as the price of these substances increase. As these materials increase in price the cost of those products will also of course increase as time goes on. This spells out trouble for the GDP of economies who predominantly sell goods involving these metals. Such countries include Japan (producers) and the United States (distributors) and their currencies are in trouble as time goes on.

The Japanese Yen is of course best kept at lower values for the nation of Japan since Japan is chiefly an export country and does not want its goods to become to expensive to purchase. Perhaps in the short term a lack of exporting will help the Japanese Yen to fall in value however in the long term more quantitative easing is almost guaranteed in that nation if no money is coming from exports. To say the Japanese Yen is in trouble is an understatement.

With lessened purchasing power the nation of Japan will be less and less able to purchase anything from China or anyone else. If Japan fails the United States dollar will suffer heavily in the Forex currency exchange since American companies distribute the Japanese goods in America. This type of domino effect outlines the true nature of the global economy we currently find ourselves in. Pairing the Japanese Yen would be a bad idea since both currencies are likely to fall drastically in the near future, instead pair the Japanese Yen with a currency such as the Australian Dollar which has been rising steadily as of late.

About the Author

Author is a Forex trader and financial analyst residing in Denver, Colorado. To stay up to date on all the latest developments in the financial world and beyond be sure to check out the forex exchange rates regularly.

By Elliott Wave International

This is Part III, the final part of our series “Robert Prechter Explains The Fed.” (Here are Part I and Part II.)

Money, Credit and the Federal Reserve Banking System
Conquer the Crash, Chapter 10
By Robert Prechter

How the Federal Reserve Has Encouraged the Growth of Credit

Congress authorized the Fed not only to create money for the government but also to “smooth out” the economy by manipulating credit (which also happens to be a re-election tool for incumbents). Politics being what they are, this manipulation has been almost exclusively in the direction of making credit easy to obtain. The Fed used to make more credit available to the banking system by monetizing federal debt, that is, by creating money. Under the structure of our “fractional reserve” system, banks were authorized to employ that new money as “reserves” against which they could make new loans. Thus, new money meant new credit.

It meant a lot of new credit because banks were allowed by regulation to lend out 90 percent of their deposits, which meant that banks had to keep 10 percent of deposits on hand (“in reserve”) to cover withdrawals. When the Fed increased a bank’s reserves, that bank could lend 90 percent of those new dollars. Those dollars, in turn, would make their way to other banks as new deposits. Those other banks could lend 90 percent of those deposits, and so on. The expansion of reserves and deposits throughout the banking system this way is called the “multiplier effect.” This process expanded the supply of credit well beyond the supply of money.

Because of competition from money market funds, banks began using fancy financial manipulation to get around reserve requirements. In the early 1990s, the Federal Reserve Board under Chairman Alan Greenspan took a controversial step and removed banks’ reserve requirements almost entirely. To do so, it first lowered to zero the reserve requirement on all accounts other than checking accounts. Then it let banks pretend that they have almost no checking account balances by allowing them to “sweep” those deposits into various savings accounts and money market funds at the end of each business day. Magically, when monitors check the banks’ balances at night, they find the value of checking accounts artificially understated by hundreds of billions of dollars. The net result is that banks today conveniently meet their nominally required reserves (currently about $45b.) with the cash in their vaults that they need to hold for everyday transactions anyway. [1st edition of Prechter’s Conquer the Crash was published in 2002 — Ed.]

By this change in regulation, the Fed essentially removed itself from the businesses of requiring banks to hold reserves and of manipulating the level of those reserves. This move took place during a recession and while S&P earnings per share were undergoing their biggest drop since the 1940s. The temporary cure for that economic contraction was the ultimate in “easy money.”

We still have a fractional reserve system on the books, but we do not have one in actuality. Now banks can lend out virtually all of their deposits. In fact, they can lend out more than all of their deposits, because banks’ parent companies can issue stock, bonds, commercial paper or any financial instrument and lend the proceeds to their subsidiary banks, upon which assets the banks can make new loans. In other words, to a limited degree, banks can arrange to create their own new money for lending purposes.

Today, U.S. banks have extended 25 percent more total credit than they have in total deposits ($5.4 trillion vs. $4.3 trillion). Since all banks do not engage in this practice, others must be quite aggressive at it. For more on this theme, see Chapter 19 [of Conquer the Crash].

Recall that when banks lend money, it gets deposited in other banks, which can lend it out again. Without a reserve requirement, the multiplier effect is no longer restricted to ten times deposits; it is virtually unlimited. Every new dollar deposited can be lent over and over throughout the system: A deposit becomes a loan becomes a deposit becomes a loan, and so on.

As you can see, the fiat money system has encouraged inflation via both money creation and the expansion of credit. This dual growth has been the monetary engine of the historic uptrend of stock prices in wave (V) from 1932. The stupendous growth in bank credit since 1975 (see graphs in Chapter 11) has provided the monetary fuel for its final advance, wave V. The effective elimination of reserve requirements a decade ago extended that trend to one of historic proportion.

The Net Effect of Monetization

Although the Fed has almost wholly withdrawn from the role of holding book-entry reserves for banks, it has not retired its holdings of Treasury bonds. Because the Fed is legally bound to back its notes (greenback currency) with government securities, today almost all of the Fed’s Treasury bond assets are held as reserves against a nearly equal dollar value of Federal Reserve notes in circulation around the world. Thus, the net result of the Fed’s 89 years of money inflating is that the Fed has turned $600 billion worth of U.S. Treasury and foreign obligations into Federal Reserve notes.

Today the Fed’s production of currency is passive, in response to orders from domestic and foreign banks, which in turn respond to demand from the public. Under current policy, banks must pay for that currency with any remaining reserve balances. If they don’t have any, they borrow to cover the cost and pay back that loan as they collect interest on their own loans. Thus, as things stand, the Fed no longer considers itself in the business of “printing money” for the government. Rather, it facilitates the expansion of credit to satisfy the lending policies of government and banks.

If banks and the Treasury were to become strapped for cash in a monetary crisis, policies could change. The unencumbered production of banknotes could become deliberate Fed or government policy, as we have seen happen in other countries throughout history. At this point, there is no indication that the Fed has entertained any such policy. Nevertheless, Chapters 13 and 22 address this possibility.

Do you want to really understand the Fed? Then keep reading this free eBook, “Understanding the Fed”, as soon as you become a free member of Club EWI.

Market News Video

In trading on Wednesday, Vehicle Manufacturers shares were relative leaders, up on the day by about 3.2%. Leading the group were shares of Tata Motors Limited (TTM), up about 10.3% and shares of Kandi Technolgies (KNDI) up about 6.8% on the day.

By James McKee

Ireland’s bailout from the IMF is contingent upon severe austerity measures that many Irish politicians are resisting vehemently. If the measures do take effect civil unrest in Ireland is virtually guaranteed since the rest of Europe has already become very unstable. Riots in both France and Greece are sure signs that Ireland will probably follow suit if their country is met with the type of cutbacks that are being proposed. Among these measures is a cut to the minimum wage amount, drastic cuts to social welfare programs, public employee layoffs and greatly increased property taxes. Depending on Ireland’s reaction the Euro may suffer greatly in the Forex Currency Exchange.

Any one of these measures would surely result in protest if not outright rioting in a modern nation, the fact that they are all required for Ireland’s “bailout” is quite detrimental. If Ireland does not accept the bailout the central bank will probably call in its debt from the country and an all out economic depression will ensue within the country. Given its close proximity to both Europe and Great Britain it is likely that any fallout Ireland experiences will have grave consequences for the GBP and the EUR.

Ireland is more or less bound to accept the terms of the EU’s and the IMF’s support at this point because if they do not the country’s economy will collapse on itself. The currency currently used in Ireland is backed by their central bank (who can simply pull value out of it) who can make or break their economy. Ireland is between a rock and a hard place and the rest of Europe is waiting with baited breath to see what occurs. In the long run Ireland is better off rejecting the austerity measures and allowing their economy to collapse which would shrug off their central bank but in all likelihood they will accept the measures and perpetuate their debt.

About the Author

Author is a Forex trader and financial analyst residing in Denver, Colorado. To stay up to date on all the latest developments in the financial world and beyond be sure to check out the forex exchange rates regularly.