Month: June 2011

The euro was down one cent versus the dollar and lower in the crosses at the conclusion of the ECB press conference. Despite Trichet’s signal of an impending rate increase in July the euro fell across the board in what looks like a “buy the rumor, sell the fact” type scenario.

To say that the euro sold off because the peripheral nations will struggle to grow in an environment of higher interest rates is to discount the price action of the last three weeks. The ECB expects euro zone growth to increase this year between 1.5% and 2.3%.

Looking at the price action of the EUR/USD the pair has risen 5% from its low in May to a high reached on Tuesday. While much of the bids for the euro came on the hopes of a solution to the European debt crisis, much of the buying is on the back of increasing interest rate expectations. As the July interest rate was predominantly priced by the market, the euro sold off following Trichet’s confirmation.

Read more forex trading news on our forex blog.

In a speech delivered to conference attendees in Atlanta yesterday, Federal Reserve Chairman Ben Bernanke gave no definitive answer on the question of further quantitative easing. The Chairman did however, provide a frank assessment of the current state of the economy which he described as being “somewhat slower than expected”.

The major factor holding back the recovery according to Bernanke is the fact that consumer spending levels are still far below pre-recession levels. Consumer spending accounts for 70 percent of the total economy but uncertainty with respect to employment and the rising cost of energy and other necessities is accounting for an increasing share of each consumer dollar.

Inflation Outlook and Monetary Policy

In his address, Bernanke acknowledged the price increases and the possibility of increasing inflation in the coming months. Despite these factors, Bernanke minimized the threat of inflation noting that while some prices have increased sharply this year, longer-term inflation is expected to remain stable.

Underscoring this outlook, Bernanke unequivocally stated his support for maintaining the federal funds rate near zero for “an extended period”. Bernanke has been using this phrase to reference the length of time that the Fed will maintain the 0.25 percent cap for over a year now, and it is clear that this policy is destined to remain in effect until at least the end of the year. On the subject of another round of quantitative easing however, the Chairman was less direct.

Bernanke noted that the Federal Open Market Committee (FOMC) will complete the current round of quantitative easing by the end of this month. The program consisted of the purchasing of $600 billion in Treasury securities over the past eight months.

Keep in mind that the Fed has received considerable criticism from some pundits for its “easy money” policy. The intended effect of any loose money policy is to stimulate activity but an unintended side effect is the potential for rising prices and inflation.

The reality though is that all this cheap money has not been enough to get consumers spending again. Elevated unemployment and general market uncertainty have conspired to drag down consumer sentiment and spending remains muted as a result.

What we can glean from Bernanke’s speech is that while the Fed remains committed to its policy of reinvesting principle payments from security holdings, Bernanke stopped short of suggesting further large-scale quantitative easing was under consideration. Most observers are reading this as a sign that the Fed believes the even though the pace of the recovery is slower than hoped for, there is no significant benefit to be derived from further direct intervention.

Naturally, this approach could change in the future should conditions warrant:

“Under all circumstances, our policy actions will be guided by the objectives of supporting the recovery in output and employment while helping ensure that inflation, over time, is at levels consistent with the Federal Reserve’s mandate”

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

Prior to the ECB press conference a few items stand out; the dollar remains within yesterday’s ranges versus the euro, pound, and yen. The exceptions are the kiwi and the Aussie dollar.

The euro which we mostly covered in the previous forex blog post but an item of additional relevance may be Trichet’s remarks which may touch on a possible restructuring of the Greek debt. Previously the ECB was staunchly against any restructuring as the ECB is one of the largest holders of Greek sovereign paper but the ECB may be warming to the idea.

Sterling is slightly higher versus the dollar after the BOE held interest rates steady at 0.5% for the 27th consecutive month. The central bank also did not change the 200B of gilts the bank carries on its books for the asset purchase facility.

The kiwi soared versus the USD both overnight and this morning as the RBNZ was more hawkish than expected. The New Zealand dollar has also received a boost since it was announced that China would be diversifying its FX reserves with the NZD. In contrast the Aussie dollar is noticeably lower for the second day in a row following disappointing employment data and a more dovish than expected RBA.

Today’s US trade balance and weekly unemployment claims will largely take a back seat to the ECB press conference as the S&P continues to trade in the red for the 7th consecutive trading session.

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

The euro felt pressure versus the US dollar this morning, with the pair’s price reaching a one-month high near 1.4700 then entering a moderate decline. Soft data out of the American economy last week forced a reevaluation by many investors who went long on the USD following the European Central Bank’s (ECB) cloudy rate statement from a month back. Today’s rate statement, therefore, has gained in prominence in relative terms.

Economic News

USD – Traders Mixed on USD as Euro Zone Interest Rates Expected Today

The US dollar experienced mixed results yesterday as traders began to shift in and out of the greenback following last week’s non-farm employment data and this week’s relatively positive sentiment. The results so far have been for the value of the USD to decline and then hold versus its currency counterparts.

The euro zone has so far benefited from this shift, but failed to break through the significant price barrier at 1.47 against the dollar. The issue of interest rate differentials has generated market tension over the past two weeks and, indeed, the shift in value among the safe-havens and the EUR has made currency forecasting a much more difficult profession. Today’s rate statements out of Europe will be of primary interest for most traders.

As for today, as just mentioned, traders will be focusing more attention on Europe given the recent hype about interest rate differentials. The US economy will also be publishing several significant reports, though, which could make today’s trading interesting. The unemployment claims report and trade balance figure should generate intense volatility in today’s later sessions.

EUR – EUR Weighted ahead of Interest Rate Decision

The euro felt pressure versus the US dollar this morning, with the pair’s price reaching a one-month high near 1.4700 then entering a moderate decline. Soft data out of the American economy last week forced a reevaluation by many investors who went long on the USD following the European Central Bank’s (ECB) cloudy rate statement from a month back. Today’s rate statement, therefore, has gained in prominence in relative terms.

With the US economy releasing several soft data reports, the euro zone is set to take a major jump against its Atlantic rival should it be capable of pushing hawkish in today’s rate announcement. A dovish approach, however, could signal continued weakness in the region as well as a less significant divergence between the two regions’ respective interest rates.

As for today, the euro zone will be publishing its monthly interest rate decision. Most investors are turning their attention on this announcement following last month’s unclear direction. There also appears to be a good chance that dollar bears will continue to push the EUR higher as the day wears on, but only if news from Europe delivers on expectations for hawkishness in its policy statement.

JPY – Japanese Yen Mixed as Investors Examine Global Risk Sentiment

The Japanese yen (JPY) has been trading with largely positive results since Friday as investors turn their focus towards news out of the euro zone. After a week of ups and downs, the Japanese yen appears set to take losses today as investors largely seek out risk ahead of today’s rate statements in Europe and Britain.

The USD/JPY was seen trading somewhat lower this morning, holding steady near 80.20 and moving up towards 80.60 at today’s opening Asian sessions. Market news released out of Europe today will likely be the driving force behind forex market values and traders would be wise to watch the rate statement by the European Central Bank (ECB) scheduled for 13:30 GMT since it has a strong correlation with global economic growth and monetary values.

Oil – OPEC Breakdown Helps Crude Oil End above $100

The price of Crude Oil ended yesterday higher as traders largely began to push back into their investments in physical assets while the US dollar flattened out. A breakdown in talks between OPEC members in Vienna this week has also generated tension among oil speculators who are anticipating a delayed response to rising oil prices. The result has been a sudden climb in oil prices since Tuesday, reaching upwards of $100.50 a barrel this morning.

Recent events have made speculating about oil prices more difficult. The plummeting value of the US dollar since Friday should have helped lift oil prices, but the commodity’s flat movement through most of the week had many withholding their investments in oil until clearer direction was provided. The OPEC spat, however, has made the investment environment around oil even less clear. Without some sign of production output agreement by OPEC, speculation is likely to drive prices into a stable range above $100 a barrel.

Technical News

EUR/USD

The current rally has helped the pair climb above the 61.8% Fibonacci retracement level from the May downtrend at 1.4570. While monthly stochastics are beginning to roll over, both the weekly and the daily stochastics are moving sharply higher. The pair could continue to rise where it may encounter resistance off of the previous trend line from the January to May rally which comes in at 1.4750. This level has additional significance as it coincides with the late April/early May lows. Further strength would test the May high at 1.4940. Initial support is found at 1.4550 while any pullback could find support at 1.4420, the 38% retracement from the May to June move higher. The 50-day moving average also hovers in this area. A deeper move could extend to 1.4330-00.

GBP/USD

Sterling is showing a few signs of weakness versus the dollar as daily stochastics are declining and a failed attempt to close the previous week above the 1.6515 resistance level. The pair is trading in a triangle consolidation pattern with resistance at 1.644. A move higher would then test the April high at 1.6745. To the downside support from the consolidation pattern is located at 1.6360. The 20-day moving average may prove to be supportive at 1.6320 as well as the trend line rising from the May 2010 low which comes in at 1.6170. A breach here would expose the May 2011 low at 1.6055.

USD/JPY

Yen strength has reemerged and the pair looks to test its post-intervention lows from early May at 79.56. A break of this level exposes the pre-intervention low at 76.11 as the charts are absent of any significant support levels. To the upside, 81.75 should see some resistance followed by the May high at 82.15.

USD/CHF

A new week and a new high for the Swiss franc as the USD/CHF traded as low as 0.8326. Falling stochastics on the weekly chart point to further potential declines in the pair. Traders may find opportunities to enter into the downtrend on a pullback in the pair. Support is located at the May low of 0.8550 followed by the falling trend line off of the February high at 0.8750.

The Wild Card

AUD/NZD

Following a jump higher and a failure to move above the 1.3190 resistance level the pair came under renewed selling pressure and reached a new monthly low in overnight trading. A few major levels stand out on the way down; the January pivot at 1.2775 and the 61.8% retracement level from the 2010 low to the May 2011 high at 1.2740. forex traders may want to target the November low at 1.2640 which would be a last stand for the Aussie dollar.

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.

Consensus estimates are for ECB President Jean-Claude Trichet to signal an interest rate hike in July by using the catch phrase, “strong vigilance”. The risk remains for the ECB to disappoint investors by pausing again, as was the case in May. However, this time around market positioning is more balanced as traders scaled back long euro positions both yesterday and this morning.

A failure of the EUR/USD to breach above 1.4700 sapped a bit of momentum from euro bulls and gave traders an opportunity to scale out of some euro exposure before the ECB press conference later today.

A 25 bp rate increase appears to be priced into the euro and the EUR/USD would likely jump above 1.4700 to the next support at 1.4750 from the late April/early May lows at 1.4750 with a potential test of the May high of 1.4940. In the mid-term, a settlement from the “troika” to secure future Greek funding needs might give the EUR/USD scope to test the 2009 high at 1.5140.

Should Trichet not signal an impending interest rate hike in July, the euro will likely sell-off. While a decline may not occur in the same dramatic fashion as in May due to a more balanced market positioning that is less one sided in favor of the euro, the euro could decline both versus the dollar and in the crosses. The EUR/GBP has already come off of its monthly high/resistance at 0.8875 to trade below 0.8890. A breach of 0.8840 could lead to declines to 0.8750. This former resistance level has further significance as it coincides with a 61.8% Fib retracement of the late May to June move. The EUR/USD would also likely drop sharply. 1.4420 stands out as a 38% retracement and the 50-day moving average is nearby as well, adding further significance to this level. A deeper move could go to 1.4310 off the June low and the 20-day moving average.

Read more forex trading news on our forex blog.

Forget Marketing Timing… Use Our Four Pillars of Wealth
by Marc Lichtenfeld, Investment U‘s Senior Analyst
Wednesday, June 8, 2011: Issue #1530

Despite the fact that the S&P 500 has doubled in a little more than two years, a shocking number of people still seem turned off by the stock market.

According to a poll conducted by Prudential, 58 percent of respondents “have lost faith” in the stock market. Even more stunning, 44 percent say they will NEVER invest in the stock market again. Never ever!

What that tells me is there’s still a lot of buying power on the sidelines. Call me a cynic, but people often say one thing and do another.

I’m sure there are some investors who got so burned by the collapse in 2008 and 2009, that they really never will put another penny into the market. They’ll cower in fear, with all of their money in gold or bury their cash under the floorboards. And while that might keep their money secure, it’ll never produce wealth.

If you’re a long-time reader of this site or subscribe to Investment U Daily, you know that we don’t try to time the markets. That’s a fool’s game. Sure, a market timer might make a great call now and then, but I don’t know any who are consistently accurate.

So rather than the futile exercise of trying to figure out the exact moment to buy or sell stocks, stick to our Four Pillars of Wealth to achieve your financial goals. The results will be better and you’ll be able to sleep at night.

1. Stick to an Asset Allocation Model – Investment U follows a formula that won Dr. Harold Markowitz the Nobel Prize in finance in 1990.

2. Adhere to Safety Switch – Buying a stock is easy. Knowing when to sell is the hard part. This way we let our winners ride and cut our losses before they get too big.

3. Understand Position Sizing – Invest no more than four percent of your portfolio in any one stock. That way if things go wrong, no one particular holding will sink your entire portfolio.

4. Cut your Expenses (Including Taxes) – Invest in no load funds with low expense ratios like Vanguard index funds. Also, choose closed-end funds that trade at a discount instead of open-end mutual funds with up front fees or loads.

You can potentially lower your taxes by not selling your gains for one year, so that they qualify for the long-term capital gains tax rate (rather than the higher short term), avoid actively managed funds in your taxable accounts and keep your high-yield investments in your IRAs or other tax-deferred accounts.

The markets are a little tough right now. The financials, like Goldman Sachs (NYSE: GS) and the Financial Select Sector SPDR (NYSE: XLF), look awful. Typically, it’s difficult for the markets to rally without the help of the financials.

Several other sectors such as networking, transportation and utilities are weakening. One that still looks strong is the drug and biotech sector – although that could change after this week’s annual meeting of the American Society of Clinical Oncology. It’s the biggest cancer meeting of the year and biotech stocks typically sell off for about a month after the meeting.

None of this is reason to panic or dump your stocks.

Consider following the Four Pillars of Wealth and leave the panicking to those who have ridiculously sworn off the markets forever.

Good investing,

Marc Lichtenfeld

It’s nearly summertime. It was 94 degrees out here in Eastern Wisconsin yesterday. We grilled shish kebabs and had fruit salad. It’s the time for hanging out outside as the heat drifts away to a balmy evening.

It’s also the time where we have to start preparing for Taipan Publishing Group’s 2011 Global Opportunities Summit.

This year, we’ll be meeting again in Las Vegas, where summer never dies. As the week goes on, we’ll be talking to you more about this year’s exclusive conference, but I wanted to share with you a snippet of what I talked about last year.

Last year, Sandy Franks and I had just finished our book, Barbarians of Wealth: Protecting Yourself from Today’s Financial Attilas.

The final section of our book gives investors four ways to protect themselves from modern-day financial barbarians… But there was one way that we didn’t include in the book, and that’s what I told last year’s attendees.

The Lost Barbarians of Wealth Chapter

So here’s the question… Why didn’t we include this chapter in our book?

Well, because this Lost Chapter requires you to be a little cold-hearted. It’s not about defense this time around. You’ve got to be able to just take your profits and run.

Here’s what I mean.

This Lost Chapter deals with playing both sides… The barbarians and your fellow investors.

It’s a little like being Robert Morris taking advantage of a possibly profitable situation. He was the consummate businessman, coldly calculating, always on the prowl for profits.

This doesn’t mean you become a barbarian, or a pirate, or an invader.

It means something simpler.

It means putting a tollbooth on the Silk Road, for example.

The Silk Road

The Silk Road in its early years crossed an amazing distance, touching innumerable cultures and markets. That made this route extremely valuable to whoever controlled it.

No surprise then that Genghis Khan sought control over this lucrative trade route as he expanded his empire.

Genghis’ bloodline knew where the money was. At first, Genghis and his Mongol hordes had to fight for control of their surrounding territories. Then, these ruthless barbarians systematically eliminated their enemies and took control of both lands and peoples from the Korean peninsula to the Black Sea. Not only was the Silk Road a “cash cow” for the Mongols, the route made for quick movements of armies during campaigns as the empire expanded.

They now controlled major trade routes through their empire. They controlled massive amounts of territory around these routes.

Once these settlements were conquered, the Mongols found themselves in an interesting position. The Mongols were beginning to settle in little towns and villages along the Silk Road.

These villages became wealthy because of all the trade flowing through them. The great nomadic tribes were becoming aristocratic… All because of the money flowing through their realm.

So, how does this translate to today’s financial market? How can you put a tollbooth on the Silk Road?

A financial tollbooth in today’s market means an investment that makes money from two sides of a trade. More specifically, a financial tollbooth is the market itself.

For example, we could be talking about exchanges…

Financial Tollbooths, Caravans and Cartwrights

Today, there are a number of exchanges that are publicly traded:

• IntercontinentalExchange, Inc. (ICE)
• DEUTSCHE BOERSE AG (DB1)
• Singapore Exchange Ltd. (SPXCF.PK)
• NYSE Euronext, Inc. (NYX)
• Nasdaq OMX Group Inc. (NDAQ)
• CME Group, Inc. (CME)

While these exchanges offer a way for you to put a tollbooth on the Silk Road, there might be an even more profitable option out there.

Aside from playing the markets themselves, you can play the makers of investment vehicles, like ETFs or mutual funds, like these companies:

• Invesco Ltd. (IVZ)
• BlackRock, Inc. (BLK)
• AllianceBernstein Holding L.P. (AB)
• Piper Jaffray Companies (PJC)
• Principal Financial Group Inc. (PFG)
• The Bank of New York Mellon Corporation (BK)

Think of these companies like the caravans winding their way down the Silk Road. These companies make the investment vehicles you invest in… but not just you. Massive institutions pour billions of dollars into their mutual funds and ETFs.

But there’s one more link in the Silk Road we should talk about. We’ve had the Tollbooths and the Caravans. Now we need…

The Cartwrights…

These are the companies that help keep the caravans moving… Asset Managers. Companies like:

• State Street Corp. (STT)
• Artio Global Investors Inc. (ART)
• Legg Mason Inc. (LM)
• SEI Investments Co. (SEIC)
• Eaton Vance Corp. (EV)
• The Blackstone Group (BX)

These companies have clients like mutual funds, hedge funds, big investment banks, pension funds, retirement plans, insurance companies and a number of other asset classes. These are the guys working behind the scenes setting up fund processing, accounting, shares distribution, investment advisories, fund structuring and a lot of other services.

(Sign up for Smart Investing Daily and let me and fellow editor Jared Levy simplify the market for you with our easy-to-understand articles.)

The Chosen Three

With these three areas, you’re not pitting barbarians against investors, you’re playing both sides of the market… You’re even playing the market itself. This strategy makes a great addition to the protections offered in our book Barbarians of Wealth: Protecting Yourself from Today’s Financial Attilas.

The three companies, one from each group, that I told folks about at the global summit were NYSE Euronext (NYX:NYSE), Invesco (IVZ:NYSE) and State Street Corp. (STT:NYSE). Since talking about them, here’s how each has performed:

• NYX finished ahead of the other tollbooths, gaining 21% since Sept. 24, 2010.
• IVZ also finished ahead of the other caravan companies, gaining about 4%.
• STT finished second in its group of cartwrights, gaining more than 11%.

This September, our group is going to meet again, and the invitations are already being sent out. To get things started, on June 20 we will host the first of our survival-themed webinars. This one focuses on using Washington’s antics to your advantage. To join this one-of-a-kind event, click here.

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