Month: May 2011

Cable Technical Analysis 31st March

The current GBP/USD price action is at the 61.8 percent Fibonacci level from the 1.6745 – 1.6056 move down.

Cable has formed a bearish engulfing bar on the daily time frame after a failed attempt at the 1.6500 level.

There have been four straight up days in a row excluding yesterdays bank holiday inside day with a 490 pip move higher since 24/5/2011.

This price action suggests there may be further GBP/USD downside potential if the daily low is taken out.  Conservative traders will possibly be looking for additional bearish confirmation.

More Forex technical analysis

USDCAD’s fall from 0.9816 extended to as low as 0.9655. Deeper decline to test 0.9639 key support could be seen later today, a breakdown below this level will indicate that the uptrend from 0.9444 had completed at 0.9816 already, then the following downward move could bring price back towards 0.9444 previous low. However, as long as 0.9639 support holds, the price action from 0.9816 is treated as consolidation of uptrend, another rise towards 1.0000 is still possible after consolidation.

Daily Forex Forecast

The South China Sea is up for grabs — the world will soon see if any nation is ready to play for keeps.

Don’t look now, but the geopolitical structure of Asia is about to get very interesting.

As is often the case, it all comes down to crude oil. The South China Sea appears to have a decent amount of it — probably no game-changers, but more than enough to add to the wealth of companies and nations.

And, perhaps, enough to be strategically important.

At least, it appears China thinks so. China has unilaterally declared all of the South China Sea its property, and has sold lots for development that are up to three times as far from the Chinese coast as, say, Vietnam’s.

Both Vietnam and the Philippines dispute those claims, and have been selling lots of their own — in some cases, identical to the ones China has sold.

There’s no doubt that China has the stronger military — and it’s been using military boats to harass surveyors and others operating in cooperation with other countries.

There is also little doubt that China doesn’t have a legal leg to stand on — and the other nations are taking the matter before the UN next year. In all, Vietnam, the Philippines, Taiwan, Malaysia, Brunei and Indonesia have overlapping claims on waters in the South China Sea — and all that lays below the surface.

A Familiar Pattern

China has long been acting to secure as much additional oil as it can. Not only has it worked out numerous agreements with Arab nations… and African nations… and South American nations… it has sometimes traded favors for oil rights (like its blind eye turned toward Sudan).

What’s more, China’s crude oil reserves have shrunk nearly 40% just since 2001. With its appetite only growing stronger, China is in a dangerous position.

That’s why the South China Sea may wind up being a very contentious place, very soon.

Suppose the UN finds in favor of the smaller nations surrounding the South China Sea. Will China back down? Will it continue to use its military to bully the others?

And if it does — what will America do? Recently, Secretary of State Clinton spoke out on sovereign rights and maritime rights while in Vietnam, emboldening the smaller nations to begin asserting their claims.

Will America, long the naval power in the Pacific, push back against Chinese aggression? Not only principle, but crude oil is at stake.

Not Likely to Be a Hot Zone — Yet

We’re still many steps away from military skirmishes — though there has already been plenty of saber-rattling. Not only from China — the Philippines has flown military aircraft to scare off Chinese naval vessels.

Still, nothing beyond posturing has yet occurred. And it’s likely that nothing more will occur — that China and its neighbors will sit down at the negotiating table, and come up with some split of revenue and resources that all will find suitable.

But that’s no guarantee. And, as the finite amount of oil in the world continues to be slurped up, it’s only a matter of time before one of these disagreements blows up into something much larger.

Let’s just hope it doesn’t occur in the South China Sea, next year.

Now, the South China Sea isn’t the only location China has targeted for its crude oil. Workers are going around the clock to put the finishing touches on a massive — and secret — source of emergency oil that’s thousands of miles from Beijing.

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It’s hard to talk about the devaluation of the U.S. dollar after Memorial Day, especially when I know that my grandfather, who served in the Navy during WWII, and millions like him fought hard for America to become the greatest free nation in the world.

To be a capitalist, you must invest where your money will grow and put aside at least some of your pride and beliefs. I am not suggesting breaking your moral code, but the world is a much different place than it was during WWII. We have to accept these changes, both good and bad… and profit from them!

The Trade of the Year

The gold and silver bugs are coming out of the woodwork after the recent price pullbacks. Some experts believe there is still major upside potential. And there is a large contingent of investors making the case for hyperinflation, which could send the metals (gold specifically) soaring.

Smart Investing Daily rode the early waves of the precious metals party when we began recommending these commodities this time last year. Along the way up, we pointed out some points of support and resistance to help guide you. You can check out our archives here.

Now we’d like to tell you about a more profitable way to get long gold or silver. This trade I am about to show you has been an extraordinary winner for me. If you think the U.S. dollar will continue to weaken along with a rise in gold (or silver), keep reading.

The method I am about to show you will make you more money if these precious metals move higher and the U.S. dollar moves lower, but keep in mind if the opposite happens, you will lose more money than buying gold or silver alone.

This method isn’t just for hedging your portfolio, or for added investment safety. This trade is designed for profits, so you should judge if the risk is right for you.

How to Own Gold in Euros

Commodity experts like Dennis Gartman have been long gold in euros for some time now and it has paid off handsomely for them. It doesn’t mean you have to fly to Europe and open a bank account and deal with all sorts of red tape and costs. There are a couple ways to do it and I am going to show you one of them.

One of the easiest ways to own gold is to buy shares of the SPDR Gold Shares ETF (GLD:NYSE). The GLD is one-tenth the price of gold minus the fees they charge. It is a semi-efficient and easy way of owning gold without taking delivery of gold bars and having to deal with transaction and storage costs of that gold.

When you buy GLD using American dollars, any rise in the price of the ETF could be reduced by the amount that our dollars are decreasing (caused by inflation). Buying gold (GLD) by itself can be a hedge against inflation because it tends to rise as the U.S. dollar weakens against other currencies. But buying gold (GLD) and getting long another currency like the euro can protect you even further.

To “own gold in euros,” you must not only buy gold, but also at the same time buy something that will get you long euros and short dollars.

FXE in Black, GLD in Orange — Daily Chart (note how they have been moving in tandem)

View larger chart

Getting Long the Euro Versus the Dollar

The professionals on Wall Street have all sorts of neat and complex tactics they use to get long the euro and gold at the same time. The trick for us is to keep it simple, cheap and keep the ratios right.

The Rydex CurrencyShares Euro Trust ETF (FXE:NYSE) is one of a couple of ETFs that trades like a stock and can give us access to how the euro moves versus the dollar.

Basically the FXE closely mimics the exchange rate between dollars and euros times 100. So if 1 euro would get you $1.45 in U.S. dollars, the FXE should be trading around $145. If that exchange rate drops to $1.40 euros for every dollar, then the index should drop to $140, which would be a change of $5.

So if you buy shares in the FXE, you are getting long euro and short dollar and will profit if the dollar gets weaker versus the euro.

Here Is Where It Gets Tricky

For every one (1) share of the FXE you buy, you are risking one hundred ($100) on the euro/USD exchange rate. Buying one share of the GLD is only going to cost you one-tenth the price of one ounce of gold. The thing to remember is this: With both products, even with the ratios, they will return roughly the same amount on a percentage basis.

The question is, how many shares should you buy of each to get the right exposure?

To keep it simple, you would simply take the DOLLAR AMOUNT invested in the GLD and divide it by 100 to figure out the number of SHARES of FXE to buy. Here’s what that looks like: For $10,000 worth of GLD, you would buy about 100 shares of FXE ($10,000/100=100).

That $10,000 would get you about 67 shares of the GLD at current prices. So if you bought those 67 shares and 100 shares of the FXE, you are essentially getting long gold in euro terms! Cool, huh?!

That means you’re not going to lose your gold profits when the dollar loses value.

The thing to remember here is that you are effectively exchanging your dollars for euros; this is why I was focused on the dollar amount invested in gold. Keep in mind that there are fees and risks associated with both of these financial products, and just because this trade seems cool, it can still lose money.

Just like every investment, you should see where it fits in your portfolio, and how much you’re willing to risk on it.

If you want to buy silver in euro terms, you can use this same method with the SLV (silver ETF).

There are certainly risks in the eurozone now that need to be worked out, not to mention that the International Monetary Fund (IMF) is still searching for a new leader. Former IMF president Strauss-Kahn’s recent debacle also threw a monkey wrench into the French presidential race and perhaps the country’s economic future. A disaster in Europe could cause the FXE to fall in value.

But if the tide turns and the U.S. starts to see big inflation numbers, you’re now armed with a way to go long gold and keep all your profits.

Whatever you decide to do, always remember that there is usually more than one solution to a problem; it’s up to us to find it. Please execute proper due diligence before investing in anything!

Editor’s Note: Speaking of commodities, Safe Haven Investor editor Kent Lucas has a valuable silver tip for you. One top silver company is poised to make a major announcement about their newest mine any day now. If you own stock on the day results come out, you could make 81% in a matter of hours. Find out how to cash in.

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The regional employment figures out of Europe have produced mixed results today. Germany’s employment change revealed a contraction in jobs, but Italy published results which produced a modicum of optimism. The regional unemployment rate held steady at 9.9% and all of this data together has helped the EUR weather any bearish sentiment.

Traders are looking to this week’s employment data out of the United States as most investors look beyond fundamentals and debt woes to focus instead on the interest rate differentials between the two Atlantic giants. What impact this will have on the value of the EUR and USD this week is something many analysts are trying to speculate.

Read more forex trading news on our forex blog.

Switzerland published its gross domestic product (GDP) this morning and put on display a sluggish figure for growth. Expectations were for a 0.6% uptick in GDP, but this morning’s 0.3% figure had the harsh effect of pushing down on the Swiss franc (CHF) and weighing on the country’s finances.

The Swissie bounced off its recent high against the USD and is beginning to flatten out, and against the EUR and GBP the currency remains weaker. Traders may look to continue shorting the CHF this week if other data doesn’t come relieve some of this new pressure.

Read more forex trading news on our forex blog.

Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.

Source: ForexYard

With the United States economy coming back online following yesterday’s holiday break, the US government is scheduled to release a few minor data sets. The most impactful figure being published will be the Conference Board’s (CB) consumer confidence report, set to be released at 15:00 GMT. The data should be a rock-steady gauge from which to view the impending employment reports coming out Wednesday and Friday.

Economic News

USD – Investors Seeking High Yields Run from US Dollar

The EUR/USD rose to a three-week high Monday, reaching towards 1.4375 before settling slightly lower. The GBP/USD witnessed a similar upward jump, climbing to a four-week high of 1.6553. The shift into riskier assets supports a variety of analyses which have called for a solid return to growth in the early summer months of Europe and North America, which is leading the way into these investment shifts.

The US dollar has continued to plummet since Friday as dollar bears continue to move out of the greenback in exchange for higher yielding currencies. The Fed’s record low interest rates will likely persist for the foreseeable future, according to recent FOMC reports, and the dollar is expected to see little support this week as a result.

Today, with the United States coming back online following yesterday’s holiday break, the US economy is scheduled to release a few minor data sets. The most impactful figure being published will be the Conference Board’s (CB) consumer confidence report, set to be released at 15:00 GMT. The data should be a rock-steady gauge from which to view the impending employment reports.

EUR – EUR Moves Strongly Bullish vs. USD and JPY

The euro has been a top performer against the US dollar following last week’s detrimental downshift in greenback values. The EUR began the middle of last week strongly bullish and was revealing a modicum of weakness yesterday but has since taken off. Against the USD, the pair is pushing to a three-week high near 1.4375, while against the yen the 17-nation common currency is reaching up to 116.20, a six-day high.

With Great Britain and the United States on holiday yesterday, currency traders witnessed a relatively thin trading environment. Though debt concerns still loom in the euro zone, the higher yielding assets like the GBP and EUR appear positioned to gain despite these poor fundamentals. This trend appears to have little opposition as dollar traders shift substantial value into other assets in search of higher yields. The safer dollar and yen are under pressure as a result.

As for Tuesday, the euro looks to be continuing its gains against the greenback. A busy trading session in the Pacific economies caused a stir early on, but traders appear to still be favoring a move into higher yielding assets. Europe’s publications today are strewn across issues of unemployment and retail sales and consumer spending levels. If positive, the data could send the EUR even higher. Look for long positions on the EUR to continue through this week unless this week’s employment figures yield surprising results.

JPY – Japanese Yen Flat as Investors Weigh Risk Sentiment

The Japanese yen has been trading relatively flat recently as investors flee the greenback in search of higher yields. After reaching upwards of 82.21 last Tuesday, the USD/JPY appears to be holding near a two-week low of 80.80 for the second consecutive day. Japan’s economy has published several positive figures over the last week, much of which has helped establish the yen’s recent bullishness. Whether it will be enough to reverse much of the negative sentiment surrounding Japan is yet to be determined.

Yen traders have been weighing risk sentiment lately, attempting to decipher the direction of the economy during this news heavy week. With Friday’s Non-Farm Payrolls (NFP) ahead, much can be said about the increase in speculative shifts taking place in the market right now.

The yen suffers from Japan’s economic concerns, while shifts in consumer sentiment have helped lift yen values against a number of its rivals. Last week’s data, however, provided a ray of light which caused a secondary shift towards the yen for reasons other than safety. The USD/JPY looks to be continuing this movement for the foreseeable future as a result, especially given the massive shift away from the US dollar which is helping to lift the island currency.

Oil – Crude Oil Prices Holding at $100

Oil prices held steady for a second consecutive day today, with the $100 price level acting as a firm footing for this commodity. The price of black gold has been trading within a consolidation pattern these past several days and traders are beginning to anticipate a breach sometime this week. Yesterday’s flat movements help reveal the pressure mounting on oil prices, with buyers and sellers coming in with even trades.

The value of the US dollar versus the euro in recent trading has also continued dropping since yesterday, pushing towards a three-week low of 1.4375, which has helped hold oil prices from falling. With today’s steady sideways movement, traders appear likely to see oil reaching a decision point sometime this week. Whether oil traders decide to lift oil prices from a buy-in on physical assets, or pull away from oil out of a perceived glut, is something traders will bear witness to this week.

Technical News

EUR/USD

Early in the Asian trading session the EUR/USD broke above its 50-day moving average. The Momentum-14 indicator shows short term momentum is moving to the upside as the pair rises above its two week consolidation pattern. Resistance is found at 1.4490 followed by the May high at 1.4940. 1.4340 should serve as the initial support level followed by 1.4205 and the 100-day moving average at 1.4035.

GBP/USD

Cable received a strong bounce higher at a level that coincided with the rising trend line off of the May 2010 low. As such, momentum has swung back in favor of the pound and rising weekly stochastics support further gains. Resistance is found at 1.6520 followed by the April high at 1.6750. A breach here would target the August 2008 high at1.7040. To the downside, support comes in at 1.6330 and 1.6000, followed by the trend line at 1.6120. Below the trend line the March low at 1.5935 comes into play.

USD/JPY

The yen’s rally failed to breach the 82.25 resistance as well as the 100-day moving average before the pair turned sharply lower while making a significant close below the rising trend line from the May low. Falling daily stochastics point to further declines in the pair. Therefore traders should be short on the USD/JPY with initial support at 80.70 and 80.35, followed by the May low at 79.50. A breach here would expose the pre-intervention low at 76.10. A move to the upside and the pair may encounter initial resistance at the previous trend line which comes in at 81.95, followed by 82.25, and retracement targets from the April to May move at 82.50 and 83.25.

USD/CHF

In almost textbook like fashion, the USD/CHF rose as high as 0.8890, a level that coincides with the trend line off of the February high only to encounter resistance and plummet, ending the week at a new all-time low at 0.8464. This level should serve as initial support for the USD/CHF, followed by 0.8400. A retracement back to the falling trend line would offer traders better levels at which to enter the trend with a stop above one of the resistance levels near 0.8890 and 0.8945.

The Wild Card

NZD/USD

Earlier today the NZD/USD broke above a 3-year high at 0.8214, soaring to an all-time high at 0.8261. The pair is now trading in unchartered territory and therefore, forex traders should be long on the pair with an initial target at the big round number of 0.8300.

Forex Market Analysis provided by ForexYard.

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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.

Germany’s willingness to compromise on the restructuring of Greek sovereign debt combined with market positioning has allowed for euro bulls to regroup.

Today’s early gains in the euro were a product of the potential compromise. Also contributing to the sharp gains this morning was a shift market positioning. Friday’s CFTC Commitments of Traders report showed a more balanced market standing with leveraged funds shedding almost 9,500 long euro contracts. Today’s rally in the EUR/USD above the 1.4400 mark may have forced some of those newly established short positions to cover as the market is currently positioned short euros and long on the USD.

This morning’s rally was capped below the 1.4425 resistance level off of the May 11th high. A break here and the EUR/USD could rally to the next resistance near 1.4750 from the late April/early May lows. Support comes in at the May 20th high at 1.4345 followed by the 100-day moving average at 1.4040.

Read more forex trading news on our forex blog.

The Greek debt crisis hit a critical juncture over the weekend. An official with the International Monetary Fund (IMF) said the IMF may withhold the next round of funding scheduled for June 29th unless the European Union agrees to guarantee Greece’s budget needs for the coming year. Sources familiar with the details said that EU officials met with the Greek government during the weekend to find ways to ensure that sufficient funding would be available to fund basic government operations for  the next two years.

To add to the difficulties facing the government, the main opposition party served notice that they will only support the required spending if the government agrees to offer substantial across-the-board tax savings to the taxpayers. The government responded to the demand by noting that cutting taxes would reduce revenues thereby forcing the government to reduce spending on social programs to make up the revenue shortfall.

It was just over a year ago that Greece received its initial bailout package. The deal saw 110 billion euros ($158 billion) supplied by the EU and IMF with a requirement for Greece to implement a so-called austerity program to reduce the deficit. Greece has fallen considerably short on this constraint and several EU members are now arguing that Greece should not receive new funding until all conditions are met. Opposition to further cash outlays to Greece is particularly strong in Germany, Finland, and the Netherlands.

In addition to further cash payments, the idea of restructuring Greece’s debt was also noted last week as a possible option. Jean-Claude Juncker, head of the Eurogroup of Finance Ministers, said that some form of debt restructuring was inevitable and that he personally favored the idea of debt “re-profiling”. Market reactions was, to say the least, heated.

Re-profiling Greece’s debt as envisioned by Juncker would be a “soft” restructuring delaying payment to those creditors willing to wait beyond the original maturity date for reimbursement. This trial balloon proved controversial, however, and European Central Bank board member Lorenzo Bini Smaghi today dismissed the idea as nothing more than a “fairytale”. Smaghi said that there is no way any form of debt restructuring could be conducted in an orderly fashion without panicking the market.

Scott Boyd is a currency analyst and a regular contributor to the OANDA MarketPulse FX blog