Month: February 2011

By Zac, CountingPips.com

Today, I am pleased to share a forex interview and commentary on this week’s major events and forex trends with currency analyst at DailyFx.com, Michael Wright. Michael specializes in fundamental and technical analysis and is an active trader in currencies, stocks and options. Michael authors articles ranging from Fundamentals Versus Technical’s, Weekly Spotlight, and Forex Trading Weekly Forecast for DailyFx and FXCM in New York.

This week we do not have a lot of major economic releases out of the United States. What do you feel could be the possible drivers of the major currencies this week, especially the direction of the US dollar?

Indeed, the economic docket in the world’s largest economy will be fairly muted this week; however the latter half of the week will likely dictate dollar price action as the currency stands at the crossroads against most of its major counterparts. Key events that could serve as a possible driver for the greenback will be the monthly budget statement for January, trade figures for December, as well as the University of Michigan confidence report for February. As most drivers of sentiment have weakened, currency traders should not rule out a dismal Michigan index, which is dollar negative. It is worth noting that the index has fallen an average of 4 points since February 2000, thus a reading in the area of 72 amid expectations of 75.0 should not be ruled out, and would likely put a dent in the buck to end the week. Elsewhere, the Bank of England interest rate decision and Australia’s employment change could impact the major currencies this week. Gauging sentiment will be as important as the releases themselves.

Do you think the market saw Friday’s nonfarm payrolls result as positive for the US economic picture with just 36,000 jobs added but a decline in the unemployment rate by 0.4 percent?

U.S. nonfarm payrolls rose a mere 36K in January versus economists’ expectations of 146K, while the unemployment rate fell to 9.0 percent from 9.4 percent in December. Though the headline figure fell short of predictions, market participants saw the overall report as a positive release for the economic outlook in the U.S. as the unemployment rate fell to its lowest level since April 2009. At the same time, the market attributed the drop in the headline number to severe weather conditions as the diffusion index remained unchanged at 59.4 in January, suggesting that hiring continued during the month.

The AUD/USD pair is back testing the 1.0255 all time high, do you think it is likely we will see the pair break above this level? Should this week’s job report out of Australia be seen as the major driver’s for this currency this week?

From my point of view, the AUDUSD is unlikely to overtake its all time high of 1.0255 as the worst flood in 50 years paired with Australia’s largest tropical storm since the European’s first settled in Australia dampen the region’s growth outlook. Moreover, recent bushfires that have destroyed/damaged homes does not bode well for the economy going forward. Recently, the RBA raised their growth forecast for 2011 from 3.75 percent to 4.25 percent. In turn, this upbeat tone lead the aussie to continue its northern journey. However, as the recent disasters weigh on the region’s outlook, a dismal Australian employment report due out on Wednesday could lead to a selloff in the AUDUSD as fundamental developments start to paint a bearish picture. From a technical standpoint, the pair is trading in a range of 1.0155 – 1.011. Therefore, a break below the latter will confirm my bearish bias.

The Bank of England’s interest rate decision is out this week with the BOE likely holding the interest rate steady at 0.50%. Is there anything to watch for or to take note of regarding this event since the bank generally does not provide commentary with their rate announcement? Is the event likely to have an effect on the British pound sterling?

The Bank of England is widely expected to keep borrowing costs and its asset purchase target unchanged at 0.50 percent and 200 billion pounds in February. As of late, market participants are pricing in a 17 percent chance that the central bank will raise its key overnight lending rate twenty five basis points at its meeting on February 10th, according to the Credit Suisse Overnight Index swaps. Indeed, comments trailing the rate decision are unlikely, thus, traders should not rule out a muted response in the British pound subsequent to the release. Conversely, the meeting of the minutes on February 23rd may provide the markets with a tradable event as the split amongst policy makers widen amid uncertainty in the region’s growth prospects. If by chance the BoE raises interest rates, the British pound should easily overtake 1.62.

The EUR/USD’s uptrend turned around last week after the ECB interest rate announcement and ECB President Trichet’s news conference that was seen as dovish for future interest rate moves. This event put a dent into Euro bulls momentum after a recent high at 1.3861. Is this enough of a catalyst to bring the EUR/USD lower over the medium term? Maybe to test the last swing low around 1.2875?

Following ECB rate decision last week, the EURUSD pushed lower as the central bank head Jean-Claude Trichet reiterated his comments from January’s meeting. His speech may not be enough to resume selling in the EURUSD for the first half of this week considering the fairly light economic docket. Looking ahead, I do not rule out a slight bounce in the euro against the dollar as policy makers resume their hawkish tone. Moreover, as concerns surrounding the ability of the European Financial Stability Fund to purchase government bonds await the next EU summit in March, the rally in the greenback will need to come on the back of positive fundamental developments. Therefore, traders should not rule out a retest of the 10-day simple moving average before the selloff resumes. Thereafter, a break and a close below 1.34 exposes the 1.28 area.

The Swiss franc has been generally weak against the major currencies since the beginning of the year. Is this more of a technical correction or does this have a more fundamental underlying cause?

As of late, the Swiss franc has weakened against most of its major counterparts this year due to the rise in risk appetite as speculation that the global recovery will gather momentum continues. It is important to note and attribute the Swissie’s rally last year to its safe haven appeal. The CHF is considered a safe haven because the Swiss National Bank keeps a large part of its reserves in gold. Therefore, as the recovery in major economies gathers steam, currency traders not rule out additional losses in the Swiss franc.

Thank you Michael for taking the time for participating in this week’s forex interview. To read Michael’s latest currency analysis and trading strategies be sure to visit DailyFx.com.

GBPUSD stays above a rising trend line on 4-hour chart and remains in uptrend from 1.5344 (Dec 28, 2010 low), the fall from 1.6277 treated as consolidation of uptrend. Sideways movement in a range between 1.6000 and 1.6277 would likely be seen in a couple of days, and uptrend could be expected to resume after touching the trend line. However, a clear break below the trend line support will indicate that the uptrend from 1.5344 had completed at 1.6277 already, then the following downward move could bring price to 1.5600 area.

Daily Forex Analysis

An Andrew Tan-led company, Empire East Land Holdings, Inc. or ELI in the Philippine Stock exchange caught the market’s attention in today’s (February 7) trading when it rose by more than 14.52% from an opening of PHP 0.64 to a to close at its daily high of PHP 0.71. So looking at its price canvas above, you will see that ELI had already broken out from a complex cup and handle pattern about three weeks ago before making a return trip back towards the formation’s neckline. for awhile there I thought that ELI previous bullish move would fail but it’s a good thing that the cup and handle’s neckline was able to catch AGI’s descent and even push it high it back up.

ELI even looks more promising now as we zoom closer to its 6-month time frame. Notice how the stock made a bullish breakaway gap right few days after the red moving average kept it afloat. As some of you might know, the stock usually move in the direction of the breakaway gap as this signals the market’s increased optimism toward the issue. Oftentimes, a breakaway gap is even followed by another gap in the days to come. Moreover, today’s price action was accompanied by an increase in volume, suggesting that its move north would likely be supported. Moreover, the MACD’s histogram is about to turn positive. Such occurrence could further add to the stock’s buy signals. Furthermore, the stock still has more room to move higher, in my view, since its RSI is still far from the overbought area. In any case, ELI could once again aim for its recent high at PHP 0.84 if it continues to move up.

On the fundamental side, news that ELI submitted an offer to the Department of Finance (DOF) to purchase the government-owned Food Terminal, Inc. (FTI) in Taguig City for about PHP 14 billion caused investors to buy up ELI’s shares. FTI is one of the largest industrial complexes, in terms of area, in Metro Manila. Developing this complex into a business and residential hub more like what Megaworld Corporation (MEG), an affiliate of ELI, did to McKinley Hills, Eastwood City, and Newport City to name a few, could pay huge dividends to the company as such would attract businesses that would lease spaces and individual investors that would buy properties.

More on LaidTrades.com …

The Euro dropped almost 300 pips from 1.3859 to 1.3543 against the US dollar last week when European Central Bank President Jean-Claude Trichet said inflation risks are “broadly balanced,” dimming the prospect of an increase in interest rates. The comments on the inflation outlook disappointed investors who were betting on euro zone interest rates would rise ahead of those in the US. Friday’s employment report in the US also snapped euro’s spine. While having a disappointing non-farm employment change of only 36,000 for the month of January which is usually bearish for the USD (bullish for the EUR), US’s jobless rate came in with a surprise as it unexpectedly improved to 9.0%, a level not seen for quite some time, as compared to the 9.5% forecast. the upward revision in December’s employment change from 103,00 to 121,000 also sparked some US dollar buying.

In the process, the EUR/USD, in the 4-hour chart, broke down from its uptrend and went all the way down until it found some support at the 1.3540 area which propelled the pair for a mini bounce. However, the EUR/USD could further drop as the rally drew the right shoulder of a possible  head and shoulders pattern. If the pair breaks below the neckline of the said pattern, we can aim for the 1.3250 target price. I got this by gauging the size of the head and shoulders and added it to the possible breakdown point. However, before it reaches that level, there could be some buying pressure at the 1.3400 price mark. In case the EUR/USD heads up once again, its immediate hurdle could be 3-day downtrend line. Then after that could be the 1.3677 resistance.

More on LaidTrades.com …

Just because investment banks and stock brokerages say you should diversify doesn’t make it true

By Elliott Wave International

Talk with an investment advisor, and what’s the first piece of advice you will hear? Diversify your portfolio. The case for diversification is repeated so often that it’s come to be thought of as an indisputable rule. Hardly anyone makes the case against diversifying your portfolio. But because we believe that too much liquidity has made all markets act similar to one another, we make that case. Heresy? Not at all. Just because investment banks and stock brokerages say you should diversify doesn’t make it true. After all, their analysts nearly always say that the markets look bullish and that people should buy more now.  For a breath of fresh air on this subject, read what Bob Prechter thinks about diversification.

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Excerpt taken from Prechter’s Perspective, originally published 2002, re-published 2004

Question: In recent years, mainstream experts have made the ideas of “buy and hold” and diversification almost synonymous with investing. What about diversification? Now it is nearly universally held that risk is reduced through acquisition of a broad-based portfolio of any imaginable investment category. Where do you stand on this idea?

Bob Prechter: Diversification for its own sake means you don’t know what you’re doing. If that is true, you might as well hold Treasury bills or a savings account. My opinion on this question is black and white, because the whole purpose of being a market speculator is to identify trends and make money with them. The proper approach is to take everything you can out of anticipated trends, using indicators that help you do that. Those times you make a mistake will be made up many times over by the successful investments you make. Some people say that is the purpose of diversification, that the winners will overcome the losers. But that stance requires the opinion that most investment vehicles ultimately go up from any entry point. That is not true, and is an opinion typically held late in a period when it has been true. So ironically, poor timing is often the thing that kills people who claim to ignore timing.

Sometimes the correct approach will lead to a diversified portfolio. There are times I have been long U.S. stocks, short bonds, short the Nikkei, and long something else. Other times, I’ve kept a very concentrated market position. My advice from mid-1984 to October 2, 1987, for instance, was to remain 100% invested in the U.S. stock market. During the bull market, I raised the stop-loss at each point along the wave structure where I could identify definite points of support. If I was wrong, investors would have been out of their positions. The potential was five times greater on the upside than the risk was on the downside, and five times greater in the stock market than any other area. Twice recently, in 1993 and 1995, I have had big positions in precious metals mining stocks when they appeared to me to be the only game in town. In 1993, it worked great, and they gained 100% in ten months. Diversification would have eliminated the profit. And every so often, an across-the-board deflation smashes all investments at once, and the person who has all his eggs in one basket, in this case cash, stays whole while everyone else gets killed.

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Excerpt from The Elliott Wave Theorist, April 29, 1994

It is repeated daily that “global diversification” is self evidently an intelligent approach to investing. In brief, goes the line, an investor should not restrict himself to domestic stocks and bonds but also buy stocks and bonds of as many other countries as possible to “spread the risk” and ensure safety. Diversification is a tactic always touted at the end of global bull markets. Without years of a bull market to provide psychological comfort, this apparently self evident truth would not even be considered. No one was making this case at the 1974 low. During the craze for collectible coins, were you helped in owning rare coins of England, Spain, Japan and Malaysia? Or were you that much more hopelessly stuck when the bear market hit?

The Elliott Wave Theorist‘s position has been that successful investing requires one thing: anticipating successful investments, which requires that one must have a method of choosing them. Sometimes that means holding many investments, sometimes few. Recommending diversification so that novices can reduce risk is like recommending that novice skydivers strap a pillow to their backsides to “reduce risk.” Wouldn’t it be more helpful to advise them to avoid skydiving until they have learned all about it? Novices should not be investing; they should be saving, which means acting to protect their principal, not to generate a return when they don’t know how.

For the knowledgeable investor, diversification for its own sake merely reduces profits. Therefore, anyone championing investment diversification for the sake of safety and no other reason has no method for choosing investments, no method of forming a market opinion, and should not be in the money management business. Ironically yet necessarily given today’s conviction about diversification, the deflationary trend that will soon become monolithic will devastate nearly all financial assets except cash. If you want to diversify, buy some 6-month Treasury bills along with your 3-month ones.

Want More Reasons Why Diversification Should be Diverted from your Portfolio? Get our FREE report that explains the holes in the diversification argument. All you have to do is sign up as one of our Club EWI members. It’s free, and it will give you access to more than this diversification report. Follow this link to instantly download this special free report, Death to Diversification – What it Means for Your Investment Strategy.

The Euro remained under selling pressure in the last week. The pair EUR/USD is likely to find support at 1.3448 whereas resistance is expected the price level of 1.3824.

Following is the list of the major events for the week February 7th to February 11th, 2011 which could have significant impact over the trading of the pair EUR/USD.

In euro zone today Germany is to report its data on factory orders while a data on investor confidence in euro zone will be reported by Sentix. In United States official report on consumer credit is to be published today.

On February 8th, 2011 official report on industrial production is published in Germany and France will report the figures of its trade balance. In United States results of survey on economic optimism will be released on Tuesday.

On Wednesday February 9th, 2011 detailed report on difference between imported and exported goods and services will be published in Germany’s trade balance report. In United States Chairman Federal Reserve Ben Bernanke will address the Budget Committee in Washington where he will disclose the future direction of monetary policy. Report on crude oil inventories will also be published in United States.

On Thursday February 10th, 2011 the ECB will publish its detailed report on euro zone’s current and future economic conditions while France and Italy will publish their reports on industrial production. In United States key data on jobless claims along with report on wholesale inventories and natural gas storage will be published on Thursday.

On Friday Germany will publish its report on consumer price inflation and wholesale prices while official report on non-farm employment will be published.  Moreover ECB President will also make a public address giving hints for future monetary policy.

In United States official data on trade balance will be published while report on consumer sentiment and inflation will be released by University of Michigan.

About the Author

Daily forex trading news written by Rehan from DailyForexTrade.com

Seniorstrategist Ib Fredslund Madsen takes a look at the week ahead on the financial markets.

Legal information

Video Courtesy of en.jyskebank.tv

Feb. 7 (Bloomberg) — Randgold Resources Chief Executive Officer Mark Bristow talks about the miner’s operations in Ivory Coast and the outlook for the gold price. He speaks from Cape Town with Francine Lacqua on Bloomberg Television’s “On The Move.”

According to Barron’s this week….Aetna (AET) is turning a corner, and investors should buy shares…While DuPont (DD) is just in time to profit from the commodities boom…And Verizon’s (VZ) iPhone 4 stock-out could mean higher Apple (AAPL) revenue estimates…While the weekly also reports Apple (AAPL) may be getting ready to reinvent the television…Finally, Questcor (QCOR) is hopeful it’s Acthar for MS will offset Medicaid cuts.