Month: May 2011

By Russel Glaser

There are two major factors driving the value of the euro; interest rate differentials and the European debt crisis. At this stage, only the debt crisis is having an impact on forex trading.

Since January gains in the euro have largely been driven by interest rate differentials between Europe and the US with Europe in the process of moving European rates higher. At the same time the US was in the process of easing monetary policy via its second quantitative easing program. As markets increased expectations of higher ECB rates the value of the euro increased accordingly. With US monetary policy forecasted to remain in a state of providing the market with high levels of liquidity the EUR/USD reached a 16-month high. After the ECB signaled it will not raise interest rates as quickly as markets expected the EUR/USD came off of this high.

One way to view the different interest rate differentials is to track the yield difference between the 2-year German Bund and the 2-year US Treasury. At one point the Bund was trading at a difference of 130 bps. As of this morning the difference has shrunk to 118 bps. This data point drives home the previous factor that was supporting the euro since January, interest rate differentials.

A new, yet familiar theme is now the leading factor in the movement of the EUR/USD; the European debt crisis. Tensions are building as Greece’s sovereign credit rating was cut multiple levels by Fitch. Greece looks to be unable to reach its proposed budget deficit target of 7.5% of GDP. Reportedly Greece only has enough cash on hand to prevent a default until mid-July. This makes it the utmost importance that the indebted nation receives additional funding from previously negotiated agreements with the EU/IMF.

Speaking last week, ECB executive board member Jürgen Stark said the ECB would cease to accept Greek bonds as collateral for loans to Greek banks should Greece choose to restructure its sovereign debt. Stark was quoted as saying, “Sovereign-debt restructuring would undermine the eligibility of Greek government bonds.” Earlier comments last week from EU officials warned a restructuring would be detrimental to the Greek banking system. The ECB is rumored to have 40-50B euros worth of Greek debentures on its books. Recently Junker proposed a re-profiling of Greek debt that would extend Greek maturities based on a mutually agreed extension.

Concurrently Italy and Belgium were hit with a series of ratings downgrades, adding a string of negative sentiment to the euro zone. Elections in Spain have also brought the market’s attention back towards one of the larger European economies.

The risk for the euro is a failure of EU authorities to contain the Greek debt crisis while avoiding a contagion effect and a downturn in investor sentiment. Such a scenario would bring a sell-off of the euro in forex trading as well as European fixed income instruments.

Read more forex trading news on our forex blog.

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.

A Note from Editor Sara Nunnally: Commodities are a special niche I’ve always had an interest in. Much of the way commodity prices move is pretty straightforward. Supply and demand are the biggest factors that move prices… But now, demand growth is coming from huge investment firms.

That’s why I like to turn to someone who has an even better grasp of what’s moving commodities like gold and silver and other metals.

That is American Wealth Underground editor Michael Robinson.

He’s been riding the ups and downs in precious metals and rare earth metals for well over a year now in his portfolio. And even with the major pullback we’ve seen in silver prices, Michael is making gains for his subscribers.

We’ve featured guest articles from Michael on this topic before, and you’ve been asking for more. Here’s the latest commentary from last Wednesday.

Protect Sizzling Rare Earth Gains With Trailing Stop-Losses

After several punishing days it looks like the Great Resource Correction has finally subsided — at least temporarily.

So, I want to thank you for sticking it out during this difficult time. In the past three weeks I’ve received very few notes from readers anxious about either giving up gains or actually incurring losses with our natural resources picks.

In one sense, I was glad to see the correction. No doubt we gave up some short-term gains on existing positions. But I see lots of buying opportunities in stocks that had simply gone up too quickly.

So, I bargain-hunted. Against this backdrop, next week I will be recommending a new rare-earth exploration stock. This company owns the most strategically important mine of its kind in Europe, a region in a near-panic to acquire more rare earth metals.

In that regard, the recent resource correction has given us the chance to acquire this exciting company at sharply reduced prices. And today’s rally allows us to lock in some gains on the Rare Earth Giants of North America I recommended almost a year ago.

In a moment I’ll tell you how to protect those sizzling gains on half the positions. First, however, I want to remind you once again that resource stocks remain subject to corrections during what I believe will be a long bull market for energy, precious metals and rare earth metals.

That’s why we recently took gains of more than 60% on half our silver positions. You may recall at the time I said we might see gains evaporate even further before a recovery would occur.

It’s too soon to know if silver stocks will maintain the strong momentum we saw in early trading today. At deadline, [CENSORED] was up more than 5% as [CENSORED] gained 4.5%.

As of today we’re up about 65% on the half we are still holding. With [CENSORED] that figure stands at 48%.

We’ve owned [CENSORED] for about six months, which is usually the minimum I like to hold a position. So, if the market turns dramatically against us in the next few weeks we may need to close out the remaining portion and buy it all back later at more favorable prices.

With so much volatility in the markets today it’s hard to predict how long the natural resources rally will last. These days the slightest bit of bad news seems to cause tidal waves of panic selling.

But as of now the rally remains broad based. In fact, every natural resources stock in the portfolio showed gains today.

For [CENSORED], that was welcome news. It was up 2% in early trading today for cumulative profits of just under 9%. After the company recently announced new financing, we saw half our earlier gains evaporate in just a few days.

This performance got me to thinking we really ought to protect profits on the rare-earth-exploration stocks I recommended in May 2010. All were in a special report titled “The Rare Earth Giants of North America.”

They’ve all shown terrific returns with our “weakest” position yielding nearly 200% profits. Though I’m bullish for the long haul I think we need to protect ourselves against volatility while remaining open to a renewed rally.

(Sign up for Smart Investing Daily and let regular editors Sara Nunnally and Jared Levy simplify the market for you with their easy-to-understand articles.)

Here’s what I recommend you do: Lock in gains on half of each position with trailing stop-losses.

You can do this yourself online if you have an Internet brokerage account.

This approach is designed to remove the guesswork on when to take gains. The market will decide for us so we can relax and go about our business of looking for new investment opportunities on the road to creating wealth.

Editor’s Note: This article had specific stock recommendations that have been censored because they are still open positions in the American Wealth Underground portfolio. But these names, and those in Michael’s report, “The Rare Earth Giants of North America,” are available online to all subscribers.

You can learn more about these companies by joining American Wealth Underground, and if you hurry, you might even be able to catch the alert that releases the name of that strategic mining company in Europe.

Article brought to you by Taipan Publishing Group. Additional valuable content can be syndicated via our News RSS feed. Republish without charge. Required: Author attribution, links back to original content or www.taipanpublishinggroup.com.

{jtagstpg} {authorstpg}

Other Related Sources:

Why America’s Problems Could be Bad News for the Aussie Dollar

“California unemployment edges below 12%”

In a moment, we’ll explain why that headline from the Los Angeles Times points to more trouble for the U.S. economy, but good news for the U.S. dollar…

With an unemployment number of 12%, you’d think most folks would be happy to take any job they can.

But not the four picketers we ran into outside our hotel in San Francisco.

They weren’t the only ones protesting.  Two former employees of CVS Pharmacy picketed the store on Market Street.

And further along two picketers handed out leaflets outside the entrance to Bristol Farms grocery store at Westfield’s San Francisco Centre.

A downward spiral

These events – while small – help confirm our view of the U.S. economy: it’s on a downward spiral.

Don’t get us wrong.  We’re a fan of the U.S.A.  We’re sure throughout history there’s no better example of the downtrodden being granted the liberty and opportunity to succeed.

That’s what happens when individuals are free to make their own decisions and mistakes.

The only problem is the country is suffocating from Progressives and statists.

Those who want the government to do more, not less.

They want more money going to government.  And less in the pockets of individuals and private enterprise.

That’s what makes us sceptical about the so-called U.S. economic recovery.  We don’t believe trillion dollar debts and deficits add up to a recovering economy.

In that case, you’d expect us to sell the U.S. dollar.

Wrong.

In fact, we believe you should do the opposite…

Why you should buy the U.S. dollar

Like it or not, the U.S. dollar is still the global reserve currency.

And with the Euro and Japanese Yen on the nose right now, we’re not convinced investors will abandon the Greenback yet.

Don’t forget, the U.S. economy still accounts for one-quarter of global Gross Domestic Product (GDP).  That’s on a par with U.S. economic share in the 1980s and 1990s.

That all suggests when the proverbial hits the fan again, you could see another knee-jerk rally of U.S. dollar buying.  It’s hard to see big investors breaking old habits.

Not because America has the best economy.  But simply because investors are used to buying the dollar.  Despite all that’s happened, most investors still see the U.S. dollar as a safe investment.

Emerging nation currencies such as China and Brazil still rely on the U.S.

And when markets take another hit, we’re not convinced big investors in Europe will hold most of their cash in Chinese Yuan or Brazilian Reals.

We’re not the only ones to think this.

The fact the Aussie dollar has failed to go tells you investors are cautious about further gains.  That could mean the Aussie’s glory run is over.

And the same goes for other currencies.  Here’s the U.S. dollar index chart:

The U.S. dollar has bounced after plunging from 88 to 73 in less than a year… even if it’s just a small bounce.

Make no mistake, it could have a big impact on your investments if the Aussie dollar drops and the U.S. dollar gains.

While it’s not something we’ve addressed in Australian Small-Cap Investigator, our old pal, Australian Wealth Gameplan editor, Dan Denning has.

And that makes sense to us.

The fact is, Aussie investors have a lot of money invested in commodities stocks.  Commodity prices have a big impact on the value of the Aussie dollar.  So any swift and long-term decline in industrial commodity prices – iron ore, copper, etc. – spells trouble for the Aussie dollar and your investments.

We can’t tell you exactly how Dan has suggested investors reduce their Aussie dollar exposure – that’s for subscribers only.

But we can say that with the Aussie dollar near a record high, it makes sense to manage your exposure to the commodity-focused Aussie.

Cheers.

Kris Sayce
Money Morning Australia

P.S. The Aussie dollar is still trading near a multi-decade high.  The Aussie dollar is one of the most popularly traded currencies on the market, due to the commodities exposure.  That means it’s possible the Aussie dollar is in the middle of a huge currency price bubble.  And when it re-values lower it will have a big impact on Aussie share prices.  In our opinion, that’s something you should prepare for.  To check out what Dan Denning has told his Australian Wealth Gameplan readers, click here…

Why America’s Problems Could be Bad News for the Aussie Dollar

By Russell Glaser

The technicals for the USD/JPY are beginning to signal a potential move higher, a move that is in-line with the fundamentals.

Weekly stochastics are rising, indicating longer term momentum is swinging to the upside. The daily chart’s 14-RSI is also moving steadily higher confirming the short term bullish run. The USD/JPY has already retraced 38% of the April to May move lower and a rebound in the pair could continue further. The 50% and 61.8% retracement levels stand out as potential targets, coming in at 82.55 and 83.25 respectively. Before these retracement targets, near term resistance comes in at 82.20 followed by 82.80.

The rising trend line off of the May low should prove to be supportive with significant support at this week’s low at 81.30.

Click here to read Part II, fundamental analysis of the Japanese yen.

Read more forex trading news on our forex blog.

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.

By Russell Glaser

The yen continues to ease as both fundamentals and technicals are aligning against the Japanese currency. Below is part I of II discussing the fundamentals of the yen and the Japanese economy

Yesterday the Bank of Japan meeting minutes from the April 28th meeting showed a single board member, Deputy Governor Kiyohiko Nishimura, came out in favor of additional credit easing to aid the Japanese economic recovery. Nishimura said, “The need for additional momentary easing had increased, taking into account the current outlook for the economy and prices”.

Exports declined 12.5% for a year-over-year decline in April. The number was in-line with consensus forecasts for a decline of 12.4%. Due to the drop in exports the trade balance fell to a deficit of -463.7B JPY. This is the first deficit in 3-months.

Earlier in the week the BoJ issued a negative economic assessment. The report for the month of May shows production has fallen and domestic private demand continues to weaken following the earthquake and tsunami on March 11.

Q1 GDP contracted by 3.7% on an annualized basis.

Fundamentals point to a potential easing of monetary policy and a weakening economic position, all negatives for the Japanese yen.

Click here to read Part II, technical analysis of the USD/JPY.

Read more forex trading news on our forex blog.

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.

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.

Article by JW Jones, optionstradingsignals.com

A drop off in risk overnight fueled by rumors of a crack election in Greece faded as the day went on but the euro continues to trade lower. Sterling was bid this morning as was spot silver with markets awaiting the release of US core durable goods orders.

The euro was lower overnight following the election rumor and a reduced US GDP forecast by JP Morgan, but the EUR/USD recapped most of the losses during the London trading session. German consumer numbers came in below expectations and the EUR/USD dipped to its daily low at 1.4013 before recovering to 1.4080. Interestingly enough, today’s low coincides with the neck line of a potential head and shoulders pattern, a long term chart reversal pattern. In the near term, a break of the 1.3970 level could spur declines to the 1.3910 where the 50% retracement lies from the January to May move.

Sterling was bid across the board this morning as the Organization for Economic Cooperation and Development (OECD) suggested UK interest rates will need to be increased. While the report from the Paris based think tank should have little impact on the Bank of England’s Monetary Policy Committee, the did spur buying interest for traders to bid sterling higher. Cable rose as high as 1.6240. Initial resistance for the GBP/USD is found at 1.6320 from the broken trend line off of January low. The EUR/GBP fell to as 0.8652 before pulling back to 0.8670. The pair could continue its move lower as the Greek debt crisis keeps the euro on its back foot. A target may be 0.8620, the 61% retracement from the February to May move.

Global bourses were mixed with the Nikkei down -0.57% and the London FTSE trading even on the day. Commodities are higher with silver receiving strong bids, trading as high as 37.30. Resistance for spot silver comes in at $39.50. Support for spot silver is below the $34 level.

This afternoon US core durable goods orders are due out shortly and could be a high impact data release following JP Morgan’s trimmed US GDP forecast. Stronger US data would likely feed into USD selling and help to push sterling and spot silver higher.

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

A rebound in risk appetite spurred by stronger US economic data helped to weaken the safe haven currencies of the US dollar and the yen. The dollar block currencies recovered off of previous lows following Monday’s flair up of the Greek debt crisis and weak Chinese economic data.

Economic News

USD – US Housing Numbers Helps Risk Recovery

The dollar weakened following the release of better than expected US new home sales. The April numbers showed an increase of 7.3% m/m to 323K from the March numbers which were revised higher to an 8.3% increase to 301K. The number of homes available on the market dropped to its lowest level in one year.

On the back of the stronger US data the dollar weakened yesterday versus the euro and the dollar block currencies. The EUR/USD climbed as high as 1.4132 after trading as low as 1.4033, before pulling back to close at 1.4057. The AUD/USD rose to a high of 1.0581 before falling back to 1.4096. The NZD/USD shot above the 0.8000 level on the back of rising inflation expectations, moving as high as 0.8014 before pulling back to 0.7932. The next resistance level for the pair rests at the May high of 0.8120. Global bourses were mixed with the Nikkei rising 0.2%, the British FTSE up 0.4%, and the S&P finished lower by -0.08%. Commodities were higher with crude oil surging almost 2% following bullish report from Goldman Sachs.

Today traders will once again be focusing on US economic data with the release of US core durable goods today at 12:30 GMT. Market expectations are for an increase of 0.7% and a result above expectations may feed into renewed dollar selling with an improved risk appetite. However, traders may want to be cautious as today’s rebound in risk appetite could prove temporary as the Greek debt crisis remains in the headlines in the FX realm.

EUR – German Economic Data Helps Euro Climb, Sterling Bounces at Trend Line

The euro traded higher following better than expected German economic data as the Ifo Business Climate survey remained at 114.2 on consensus expectations of 113.9. The euro briefly dipped following disappointing European industrial orders, -1.8% on consensus expectations of -1.2%. The 17-nation currency fell following the Greek political opposition declaring their obstruction to an increase in austerity measures. However, the opposition party did note they were open to an increase in state asset sales which is a step in the right direction for securing additional EU/IMF aid.

Yesterday’s increasing risk appetite was enough to keep the euro in the positive versus the dollar but the euro failed to make any headway in the crosses. The EUR/GBP rose as high as 0.8750 but finished the day lower at 0.8690. The EUR/CHF closed lower at 1.2358 from 1.2449.

Sterling firmed yesterday, finding buyers due to the increase in risk appetite and attractive technical levels. The GBP/USD initially declined to 1.6070 but received a bounce as this price coincides with the bullish trend line off of the May 2010 lows. Sterling could receive further support ahead of today’s revised GDP report. Resistance for the GBP/USD comes in at 1.6320 from the broken trend line off of January low.

JPY – Yen Falls on Reduced Safe-Haven Buying

The increase in risk appetite kept the yen on its back foot yesterday as Japanese fundamentals continue to point to a worsening economy. Growth prospects for Japan are waning and this was highlighted by Moody’s when the ratings agency signaled a warning for Japan’s credit rating. The economic assessment earlier in the week for the month of May did little to increase investor confidence in the Japanese economy which likely fell into a recession prior to the earthquake and tsunami on March 11th. As such the yen should remain on its back foot barring a catalyst that would cause a shift back into lower yielding safe-haven assets such.

Yesterday the USD/JPY rose to a high of 82.21 from 81.79 before settling back to 81.92. Further USD/JPY targets to the upside may be retracement levels from the April to May move at 82.50 followed by 83.25.

Oil – Bullish Report Spurs Crude Oil Price Increase

A bullish crude oil research report from investment bank Goldman Sachs helped to spur gains in spot crude oil prices. The bank is known for making recommendations in the commodity markets as a bullish report in 2008 calling for $200 barrel oil helped to increase the frenzy in commodity markets.

Goldman raised its forecast for West Texas Intermediate crude to $108 from $100. This helped to spur gains in spot crude oil prices. Yesterday the price rose as high as $100 before retreating back to close the day up at $98.77.

The rebound in yesterday’s “risk-on” trade combined with the bullish crude oil report helped boost crude oil prices but traders may want to remain cautious as future price moves should be influenced in particular by the European debt crisis and any impact this may have on global growth expectations.

Technical News

EUR/USD

Momentum continues to shift to the downside with weekly stochastics falling sharply. Initial support was found at the 100-day moving average and the next major levels that come into play are between 1.3910 and 1.3860. The former is the 50% retracement level from the January to May move. The latter is a previous support level from mid-March. A breach here would target 1.3675 where the 200-day moving average and the 61.8% retracement levels coincide. Resistance comes in at 1.4130 followed by the 50-day moving average at 1.4340.

GBP/USD

Cable has received a bounce the last two days off of the rising trend line from the May 2010 low. A move back to this key support level and a potential long position could be initiated with a tight stop below the trend line. Support is found at the 200-day moving average at 1.5935 which coincides with the March low. Initial resistance is found at 1.6320 from the broken trend line off of January low.

USD/JPY

The yen has continued to weaken since the pair put in a low in early May. Weekly stochastics are turning higher, indicating future appreciation in the pair. A move higher would target the retracement levels from the April to May move at 82.50 followed by 83.25. Support comes in at 81.30 and the May low at 79.50

USD/CHF

The weekly high at 0.8890 coincided with the trend line falling off the February high. Traders may want to be cautious at this level as both momentum and stochastics on the daily chart indicate further potential gains. The pair could find resistance near the 50-day moving average at 0.8930. The last time the USD/CHF traded at this level was the beginning of the year. Support is found at 0.8745.

The Wild Card

Silver

Yesterday’s $1.50 surge in the price of spot silver helped the commodity close above the short term resistance level at $36.50. Forex traders will be looking to target the next major resistance at $39.50. Stops should be found under the $34 level.

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.