Month: March 2011

Source: ForexYard

The euro extended losses against the dollar on Wednesday after Portugal’s parliament rejected the government’s austerity plan, a move that will likely cause the collapse of the current administration. As a result, the euro fell 0.6% against the USD to 1.4100.

Economic News

USD – Dollar Sees Modest Gains vs. Majors

The U.S. dollar rose against the EUR and British pound on Wednesday, with the euro extending losses after Portugal’s austerity plan was summarily rejected by its Parliament. By yesterday’s close, the USD rose against the GBP, pushing the oft- traded currency pair to 1.6250. The dollar experienced similar behavior against the euro and closed at 1.4100.

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.

Looking ahead today, the news event that may have a very large impact on the dollar and its main currency pairs in today’s trading is the Durable Goods Orders report around 12:30 GMT. This report is very important as likely to impact dollar 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.

EUR – Euro Sinks against Majors

The euro fell against most of its major currency pairs on Wednesday on concerns a political crisis in debt-ridden Portugal could force the government to seek financial aid, though currency losses should be limited, given expectations of rising euro zone interest rates. By yesterday’s close, the EUR fell 0.6% against the USD to 1.4100.The 17 nation currency experienced similar behavior against the AUD and closed at 1.3910.
The euro had eased from a 4-1/2-month against the dollar on Tuesday after failing to break through options barriers in the $1.4250 area. Analysts said the euro could dip below $1.40 in the short term, before rising toward $1.4280, the November high.

Portugal’s parliament was expected to reject austerity measures, setting the stage for the possible collapse of the minority socialist government a day before a European summit. Portuguese bond yields rose as investors priced in increased risk of a debt restructuring.

The euro zone has a few reports scheduled for today but most of the attention will be on the EU Economic Summit meeting. Depending on the statements being released from the meeting of European Union countries, it may be difficult to gauge the direction of the euro and traders should be aware of the heightened volatility in today’s market.

JPY – Yen Sees Mixed Results Yesterday

The yen finished yesterday’s trading session with mixed results versus the major currencies. The Japanese currency extended gains versus the EUR during yesterday’s trading session, to trade around 114.10 amid a broad sell-off in the EUR. The JPY did see bearishness as well as it lost over 40 pips against the AUD and closed at 81.95 levels.

Analysts expect any gains by the yen to be limited as the Bank of Japan doesn’t want the currency strengthening too much, and went as far to arrange a coordinated global intervention in currency markets last week to cap the yen.

The JPY’s trends will be affected by the rallies of its primary currency pairs. It seems the USD and EUR are expected to continue a volatile trading session today and their crosses with the JPY will likely be as well. Traders should keep a close look on the news coming from the U.S. and Europe as these economies will be the deciding factors in the JPY’s movement today, especially the U.S. Core Durable Goods Orders at 12:30.

OIL – Crude Oil Trades at 30-Month High

Crude oil climbed near a 30-month high to above $106 a barrel, as the U.S. and its allies attacked Libyan leader Muammar Qaddafi’s troops and protesters clashed with government forces in Syria, bolstering concern supplies will be disrupted.

Prices have advanced 16% this year as unrest spread from Tunisia to Egypt, Yemen, Bahrain and Syria. The U.S. government said that crude supplies increased as gasoline stockpiles fell to the lowest level this year.

As for today, traders should first and foremost follow the developments in the Middle East, as this issue will continue to impact oil prices in the near future. Traders are also advised to follow the U.S Durable Goods Order report, which is scheduled for today at 12:30 GMT, as this report tends to have a direct impact on the market and a correlation with oil prices.

Technical News

EUR/USD

The EUR/USD has gone increasingly bearish in the past 2 days, and currently stands at the 1.4100 level. The daily chart’s Slow Stochastic supports this currency cross to fall further today. However, the 4-hour chart’s Stochastic Slow signals that a bullish reversal will take place today. Entering the pair when the signs are clearer seems to be the wise choice today.

GBP/USD

The cross has been dropping for the past 2 days now, as it now stands at the 1.6250 level. The Slow Stochastic of the 4-hour chart shows a bullish cross has recently formed, indicating that an upward correction is imminent. This view is also supported by the RSI of the 2-hour chart. Going long with tight stops may turn out to be the right choice today.

USD/JPY

The pair has been range-trading for a while now, with no specific direction. The Daily chart’s Slow Stochastic is providing mixed signals. All oscillators on the 4 hour chart do not provide a clear direction as well. Waiting for a clearer sign on the hourlies might be a good strategy today.

USD/CHF

The pair has recorded much bearish behavior in the past several weeks. However, the technical data indicates that this trend may reverse anytime soon. For example, the daily chart’s Stochastic Slow signals that a bullish reversal is imminent. An upward trend today is also supported by the 4-hour chart’s RSI. Going long with tight stops may turn out to pay off today.

The Wild Card

Silver

Silver prices rose significantly in the last few days and peaked at $37.22 for an ounce. However, the 8-hour chart’s RSI is floating in an overbought territory 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.

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EUR-USD

It can be seen that the price moves in the upside parallel channel (discontinuous red), and stops in this area. We believe that the resistance level 1.43 nearly along with the upper side of the channel and the upper Bullinger band will form a barrier for the up trends, and begin the retracement at least to the level of 1.4036, the near support level.  

As can be seen by the graph bellow:

Potential Trade

At 1.4100 breakdown of the price can be waited the formation of the downward price structure in the hourly time frame and to enter the short position.

First target: 1.4060

Second target: 1.4000

As can be seen by the graph bellow:

GBP-JPY 

The price performed sharp increases from the level of 122.40 to the target of 133, about 800 pips. In this area the price stopped and it could be seen the last three candlesticks form Japanese candle sticks in the name of evening star. This is a reversal pattern and therefore, and we believe that this will lead to a short movement which is between one third to two thirds Fibonacci, in other words between the level of 129 to the level of 126.50.

As can be seen by the graph bellow:

The price got to the resistance level of 133.00 and to the dynamic resistance level which is labeled in AB letters, and from there starts to go down. We believe that the breakdown of the price 130.50, approve the movement of the retracement of all the uptrend (broken blue line).

Potential Trade

When the price will break down the price level of 130.50, you can wait in the hourly time frame for a decrease in the price structure and to enter the short position.

First target: 129.00

Second target: 127.70

Third target: 126.40

As can be seen by the graph bellow:

News Calendar for the 24.03.2011

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Both technical and fundamental data support a bullish bias for the Philippine peso against the US dollar (bearish USDPHP). Let me show you how. 

Technically, the USDPHP pair has continued to trade within a descending channel after it broke down from a symmetrical triangle formation. Now, as long as this current trend persists and until a reversal takes place, it is likely that the pair would resume moving along its present direction. Zooming closer, the Philippine peso has been exchanging at around PHP 43.500 to a dollar for the past several days. In any case, any increase in buying appetite for the peso could have it appreciate back to PHP 42.00.

On the fundamental side, the Bangko Sentral ng Pilipinas (BSP) is set to publish its monetary policy decision some time today. the central bank is widely expected to hike its benchmark interest rate by 25 basis points to 4.25% due to the previous higher-than-expected inflation rate in the Philippines and the jump in the commodity prices, particularly crude oil, because of the political turmoil in the Middle East.

The year-over-year inflation in the Philippines in February surged to 4.3%, surpassing the central bank’s forecast of only 3 to 4.1%. January’s figure was only at 3.6%. Given the unexpected rise in inflation, it is normal for the BSP to adjust its monetary stance to control any changes in prices. One way that it could so is by raising its overnight interest rates. Such would discourage excess lending and spending that would therefore dampen inflation.

The political turmoil in the Middle East, first it was Egypt and now it’s Libya, has been causing a lot of panic in the financial markets as well. The WTI crude oil has suddenly jumped back to above $105.00 per barrel due to concerns that the “war” in Libya could have a negative impact on the supply of oil.

While some economists believe that the BSP could just follow the European Central Bank (ECB) in keeping its rates unchanged and just being a little more hawkish in its statements, either of the two would still be bullish for the Philippine peso. You see, being “hawkish” means that inflation is still expected to rise in the future. Such would then be, of course, “priced in” by the market. An interest rate hike, however, would generally quickly reflect on the peso.

More on LaidTrades.com …

Oracle (NASDAQ:ORCL) said that it will cease all efforts to develop technology around Intel’s (NASDAQ:INTC) Itanium chip, which reportedly took Intel and Hewlett-Packard (NYSE:HPQ) by surprise. The company said its decision on the chip came after multiple conversations with Intel senior management, which made it clear that their strategic focus is on their x86 microprocessor and that Itanium was nearing the end of its life. HP issued a statement saying, “We are shocked that Oracle would put enterprises and governments at risk while costing them hundreds of millions of dollars in lost productivity in a shameless gambit to limit fair competition.” Oracle has a potential upside of 14.6% based on a current price of $31.41 and an average consensus analyst price target of $36.

After breaking above 1.6343 resistance, GBPUSD pulled back from 1.6400. However, the fall from 1.6400 is treated as consolidation of uptrend, as long as 1.6185 support holds, another rise towards 1.6500 is still possible after consolidation. However, below 1.6185 will indicate that lengthier consolidation of uptrend is underway, then deeper decline to 1.6000 area could be seen.

Daily Forex Forecast

Welcome to the Financial News Network Options Report.On the call side, D.R. Horton is seeing close to 14 times the normal amount of calls today despite a disappointing new home sales report. MELA Sciences and Dollar Tree calls are at around 5.5 times the average volume as investors are betting bullishly on the companies. Motricity calls are at 4.7 times the average amount after Jim Cramer mentioned the company positively. Northern Oil & Gas calls are also seeing heavy volume today, close 4.5 times the average amount, despite shares of the company being down around 10% today.Taking a look at the put side of the ledger, Cameron International puts are at over 6.5 times the average amount today after the company was named in the review of the BP Oil Spill by the US Government. Nexen puts are at 4.5 times their normal volume, as investors look to be bearish on the company today. Best Buy puts are at 4.5 times the average amount ahead of their quarterly earnings report before the market opens tomorrow. Finally Dell puts are at 4.3 times the average amount today bearish bets by investors. This has been you daily options update from the Financial News Network. Stay tuned for more insight into where the big money is placing their bets each day

March 23 (Bloomberg) — Charles De Vaulx, portfolio manager at International Value Advisers LLC, and Mark Travis, chief executive officer at Intrepid Capital Corp., talk about investment strategy. De Vaulx and Travis also discuss the performance of U.S. stocks. They speak with Pimm Fox and Julie Hyman on Bloomberg Television’s “Taking Stock.” (Source: Bloomberg)

The Japanese government said Wednesday that the economic cost of the earthquake on March 11 and tsunami could be as much as $308 billion, which is more than double the cost of the Kobe earthquake that happened in 1995.Construction and related costs are expected to total 16 trillion to 25 trillion yen, according to reports. The estimate is focused on infrastructure-related damages, as well as damages to homes, factories and other buildings. However, it does not take into account losses related to the nuclear-power plant.The report also said that the disaster is expected to knock about half a percentage point off economic growth in the next fiscal year.

U.S. federal prosecutors plan to call Lloyd Blankfein, the chief executive of Goldman Sachs Group Inc. (GS) to testify in the insider-trading trial of Galleon Group hedge-fund manager Raj Rajaratnam, MarketWatch and other news outlets report. In a letter to U.S. District Judge Richard J. Holwell, prosecutors said they intend to call Blankfein to testify regarding Rajat K. Gupta, a former Goldman director who the Securities and Exchange Commission has accused of passing confidential information to Rajaratnam. The prosecutors said they want Blankfein to testify on “Gupta’s service on the Goldman Sachs Board of Directors, the duties of confidentiality that Gupta owed to Goldman Sachs, and certain confidential information that Gupta obtained through his service on Goldman’s board in 2008.” The prosecutors sought to limit the defense from questioning Blankfein over Goldman’s role in the financial crisis or any pending investigations of Goldman. Such questions would be irrelevant because “this office has not notified Mr. Blankfein or Goldman Sachs that either is a target (or, for that matter, a subject) of any pending criminal investigation,” they wrote, according to the news reports.

By Jared Levy, Editor, Smart Investing Daily, taipanpublishinggroup.com

Eleven days ago, I noticed a major shift in some closely watched correlations and saw a marked change in some of the indicators that I follow, indicating a further breakdown in the markets. At the time of that Smart Investing Daily article, the index (SPX) was trading at about 1,305. After a 55-point (4%) drop, the markets as of this past weekend looked like they might be finding some support, but don’t be fooled.

The S&P 500 gives us an excellent representation of the broad market and many chartists (including me) turn to it for guidance on the overall direction of the market.

For the near term at least, I have major concerns about the technical bullish “trend” that we had been in up until mid-February. It’s quite common for stocks to take a “breath” and either move sideways (consolidate) or actually move lower for a short period, then resume trend higher.

A break in a bullish trend is normal, but when major basic indicators no longer support a “bullish” trend, it may be time to reverse course. This might be what is happening now. This bearish sentiment is also backed by some key fundamental data. Also, don’t let one or two-day rallies fool you into a false sense of confidence.

Patterns Emerge

Looking at the chart below (taken before the open on Monday), you can see the convergence of the 20-and 50-day moving averages. That level of about 1,302 is an area that I have deemed the “fail point,” clearly marked with a red arrow. You probably won’t find this term in any technical charting books, but it’s really simple to understand.

When the 20-day moving average crosses below the 50-day, this can indicate a change in a short-term trend (perhaps lasting a couple weeks). Furthermore, if the stock’s price, or in this case the S&P 500’s price, is below the 50-day, that is even more reason to stay bearish.

*I began writing this at 4 a.m. on Monday before a day of travel — amazing how the S&P moved right to the 1,300 mark…

Check this out:

Daily chart of the S&P 500 back to October 2010

View larger chart

We are at a serious inflection point in the market at least from a technical perspective. If the S&P hits that level of 1,302 and does not climb above it with strength and hold there, I would NOT be looking to get long! Even worse would be a complete failure of the index at that level. To me, a failure could spark some serious selling.

I’m not saying that the market can’t recover in time; I am specifically referencing the action for the next couple of weeks, perhaps until earning season begins.

If we don’t rally at all from here, look to the 1,264 level for some support; then the next leg down could take us to 1,224. The latter may be more realistic given the circumstances.

The Pieces Don’t Fit

Housing

I have heard the argument that the P/E ratio of the total S&P 500 is relatively low. I know that some are saying housing is slowly recovering, but you know that’s just not good enough. For most Americans their home is the only asset (besides stocks) that keeps up with inflation.

Since home prices have been retreating to pre-2003 levels, one would think that if we were truly recovering and Americans realize that their home is just the only thing that can keep up with inflation, existing home sales would be screaming — but they are NOT. Granted, they have strengthened, but we saw the same thing last year, then a fizzle (take a look at the chart below). Without a stable housing market, I have a problem with betting the farm on a real recovery.

Month-over-month sales figures for existing homes

View larger chart

Below is the Case-Shiller home price index, showing percentage change in prices. It doesn’t look so hot.

View larger chart

Perhaps we are going to truly have a jobless recovery (here in the U.S.). From my vantage point, it’s no longer about U.S. employment, but population growth, modernization and employment abroad that is fueling the majority of the “recovery” here in the States. So I guess the American worker is screwed, but our GDP and stocks can still grow?

Take a look at the unemployment rate chart (month over month) below; does that chart spell strong consumer to you?

(P.S. This chart does not include the total unemployment rate, nor does it adjust for skew in the size of the “labor” pool. More on that later…)
Unemployment rate chart (month over month)

View larger chart

Inflation

So you would think if more people were unemployed and their houses worth less, inflation must be low… maybe prices are even dropping. Nope…

Well, Chairman Bernanke doesn’t seem too worried, but take a look at the chart below. It displays the monthly changes in average prices that consumers pay for goods, on a year-over-year basis. Again, it doesn’t take a rocket scientist to see that prices and unemployment are still very high and our home values are basically dead in the water.

CPI monthly percentage change year over year

View larger chart

(Investing doesn’t have to be complicated. Sign up for Smart Investing Daily and let me and my fellow editor Sara Nunnally simplify the stock market for you with our easy-to-understand investment articles.)

Putting the Puzzle Together

Something’s got to give and I don’t know if it’s prices — food, materials, energy, etc. — or stocks themselves suffering from higher input costs and weak consumer demand.

But you know, with all that’s going on in the world, I don’t see oil dropping sharply within the next month. Top that off with continued demand from China and the globe for food and infrastructure, and I don’t see a sharp decline in food or material demand.

I am more concerned about the profitability of companies that can’t generate as much revenue from high material, food and energy costs and that can’t make millions on a weak consumer. There are many companies that fall into this category.

Consumer spending around the world is what will drive demand in those businesses. The conundrum is that there are many companies that have benefited greatly from the rise in energy, food and materials, and perhaps they towed the rest of the market along for the ride.

Right now, the American consumer is still struggling to a great extent on average, and at the end of day, I don’t care how good “consumer sentiment” is; without consumer real strength (not some monthly sentiment reading), many companies can’t grow profits. A wise man once told me that stocks can’t go higher without increasing profits (for very long).

We will know soon enough when earnings season begins April 11.

Editor’s Note: Things are about to change drastically in the U.S. and around the world. But it may not be the reason you think. There’s a growing crisis creeping just under the surface of our nation’s financial problems. When this “under-crisis” finally breaks through the surface, expect all hell to break loose.

Find out where the real danger lies in this exclusive investment report.

About the Author

Jared Levy is Editor of WaveStrength Options Weekly, our options trading research service and Co-Editor of Smart Investing Daily, a free e-letter dedicated to guiding investors through the world of finance in order to make smart investing decisions. His passion is teaching the public how to successfully trade and invest while keeping risk low.

Jared has spent the past 15 years of his career in the finance and options industry, working as a retail money manager, a floor specialist for Fortune 1000 companies, and most recently a senior derivatives strategist. He was one of the Philadelphia Stock Exchange’s youngest-ever members to become a market maker on three major U.S. exchanges.

He has been featured in several industry publications and won an Emmy for his daily video “Trader Cast.” Jared serves as a CNBC Fast Money contributor and has appeared on Bloomberg, Fox Business, CNN Radio, Wall Street Journal radio and is regularly quoted by Reuters, The Wall Street Journal and Yahoo! Finance, among other publications.