Month: August 2011

Euro zone growth failed to meet economists’ expectations with Germany, the economic engine of showing particular weakness. The disappointing GDP numbers dragged the euro lower as the Merkel-Sarkozy meeting draws near.

EZ flash GDP for Q2 came in at 0.2%, below forecasts of 0.3%. Exports declined by 4.7% in June, highlighting the slowing of the European economy. More worrisome is the tepid growth found in Germany which has helped to lift the EZ from the 2008 recession. German GDP increased by only 0.1% after climbing 1.3% in Q1. On average German growth is near 0.3%. Keep in mind that France last week reported a flat Q2 GDP. The weak growth data does not bode well for the euro zone or the global economy. Going forward the austerity measures in Spain, Italy, Greece, and Portugal will do little to support increased growth in H2. Later today the Merkel-Sarkozy meeting is not expected to reach any breakthrough on the subject of Eurobonds and could intensify the euro negativity seen so far today.

The EUR/USD is trading at its daily low near 1.4360 after failing to make additional gains above the falling trend line from the May and July highs. Initial support is found at 1.4330 followed by the hourly trend line at 1.4270. Resistance is located in a range from 1.4450-70, followed by 1.4540.

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.

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.

By Zac, CountingPips.com

Today, I am pleased to share our latest forex interview on this week’s major events and forex trends with John Kicklighter, Currency Strategist at DailyFx.com. John specializes in combining fundamental and technical analysis with money management and has trading experience in spot currency, financial futures, commodities, stocks, and options. In his analysis for DailyFx, John’s regularly reports on G10 fundamental forecasts, global risk sentiment and carry trade analysis.

Q: In terms of overall forex market impact and direction, what do you feel is the most important event or theme to pay attention to for the week?

For the coming week, I think the same issues that we have seen over the past two or three weeks will still hold their influence. Given the market’s deference to the possibility that we are seeing the beginnings of a global financial event; that is where our attention should be maintained. The signs of a worldwide crisis are not as blatant as many believe. A mere slowdown in economic activity is not enough to instigate general panic. We need to see trouble further escalate if fear genuinely takes hold. The next step in this process is likely to be a further deterioration in bank-level liquidity and cross board funding issues. Until there is further deterioration on this front – or policy officials further flush that fear out – the markets will likely struggle to gain permanent direction and volatility will settle down.

Q: The US dollar has been strong in the past few weeks with the markets being rocked by volatility and risk aversion. What do you feel is the outlook for the dollar in the near term?

The dollar has shown a remarkable ability to hold its ground across the board; but its general strength has been measured. If you look the Dow Jones FXCM Dollar Index (an equally weighted index of EURUSD, GPBUSD, AUDUSD and USDJPY); you see that the greenback was chopping for six days before tipping lower to start this new trading week. That traces back to the dollar gaining ground against high-yielding currencies like the Aussie and Kiwi dollar though risk aversion channels; but it has gained little to no direction against its core counterparts (euro and pound) or fellow safe havens (like the yen). To gain serious strength, you need to play to the currency’s real appeal – liquidity. Since it would be somewhat difficult to undermine the stability of the capital markets again or see the short-term yields on US assets rise this week, the dollar will defer to slow retracement in the absence of big headlines.

Q: With the Federal Reserve pledging to hold rates low until mid-2013, do you think this will effectively dampen any possible dollar resurgence over a longer term horizon?

Holding the US yield down for that long will certainly weigh on the dollar. That doesn’t mean that the greenback can’t bounce. Speculative counter-trends, short-term liquidity scares, unbalanced growth potential and a withdrawal from risky emerging markets can certainly offer a boost. However, it will be tremendously difficult for the dollar to maintain an advance if there isn’t the potential for returns to back it up.

Q: The Bank of Japan and the Swiss National Bank have both taken intervention measures recently with the SNB also toying with the idea of a euro-peg. Seeing that central banks have not made much headway with these interventions in the past few years, do you think either central bank will have success in weakening their respective currencies?

There is no hope for success in your standard intervention efforts. Central bankers are coming to terms with that fact. However, the powers that be have recognized this shortcoming and are trying to up the ante. The problem is that they are fighting dominant market flows and basic understandings of capital flow – which is a losing game. If the market wants a safe haven or specifically an alternative to Euro-exposure (without leaving Europe), they will go to Switzerland. If you are unwinding carry trade exposure to cover margin, you repatriate to the Japanese yen as it was the initial funding currency. You won’t effectively fight these well-capitalized flows. However, if conditions are level and they put up a surprise effort; they could carry the market further in their chosen direction. Between the two , the SNB’s effort goes farther as it effectively threatens near constant manipulation if they go for a target or target range.

Q: The Swiss franc has continued to be a major safe haven currency and trades at many historical highs. Do you expect Swissy strength to continue in spite of the SNB’s best efforts? Would we generally need to see a return to risk for franc weakness?

The franc will continue to gain ground until the risk aversion demand or Euro-area funding crisis eases up. That said, the SNB’s threat to peg the currency to a target or range against the euro can certainly hold it down for a time. A mandate for constant intervention to keep the franc stable is a force that few speculators would try to fight. That said, if you were promising to hold the exchange rate and your true intention was to look for safety, stability of price while you are sitting in a safe haven makes it even more appealing. We have to remember that not all pegs are successful.

Q: The Australian dollar touched its lowest level since March in last week’s trading against the US dollar. Do you feel that the Aussie is a relatively attractive buy at this point? At what level do you think the AUD/USD would have to reach to think the pair is now on a bearish path?

I’d be very careful of the Australian dollar. It is true that it has a much higher yield than its counterparts; but it isn’t just about current yield. Expectations for future yields comes into the equation as well. And, if we look at overnight swaps, we see that the market is certain of an RBA rate cut at the next meeting and is pricing in approximately 130 bps of easing over the coming 12 months. If risk appetite trends come back in a strong way, the market may overlook these issues or change their view. Alternatively, if uncertainty lingers or Australia’s growth and yields revert to the global mean of its counterparts, this outlook could become even more dovish/bearish.

Thank you John for taking the time to answer my questions in this week’s forex interview. To read John’s latest currency analysis and trading strategies you can visit DailyFx.com.

By WallStreetDaily

By ForexYard

Traders will witness the release of moderately significant reports on inflation at the consumer and retail level in the UK today at 9:30 GMT. Should the figures reveal stagnation in inflationary growth, we could see heftier flights to safety in the days and weeks ahead, pushing the GBP lower as a result.

Economic News

USD – USD Resisting Market Bearishness

The US dollar (USD) was experiencing short swings yesterday as investors anticipate what impact this week’s housing data will have on the weakened US economic outlook. The greenback had found moderate strength in the morning hours, but soon pared its gains as investment data turned sour. The value of safe-haven assets like the Swiss franc (CHF) and Japanese yen (JPY) have been buoyed by a shift away from higher yielding assets, though the Swissie’s value was gouged by recent talk of capping its strength.

With the economies of Europe and the US posting little positive news on yesterday’s calendar, the amount of pessimism surrounding the forex market, particularly in the fragile United States and euro zone, appears to have grown, further dampening the strength of the EUR, GBP, and AUD. The dollar has seen mild gains as it tends to do when risk aversion grows, though its value rests on shaky ground considering recent financial maneuvers currently underway.

With a heavy news day expected today, however, traders are sure to see a return of portfolio adjustment as volatility becomes elevated. The US economy will be publishing several reports on housing and one industrial production figure alongside the capacity utilization rate indicator. Should today’s news disappoint, there is a possibility that more investment will get pushed towards the safety of the Swissie and yen, driving USD values lower in the process.

GBP – British Consumer and Retail Inflationary Data Setting Today’s Pace

The Great British pound (GBP) has been seen trading with largely bearish results so far this week as traders assess the risk sentiment across the region. The Cable was seen trading bearish in late trading as shifts into the greenback, due to uncertainty about a recent deal struck over the debt ceiling in the United States and subsequent ratings downgrade, caused a stir in the foreign exchange market.

News of debt contagion spreading across the euro zone also has several economists worried that a toppling of consumer confidence may be up next. Whether Great Britain is affected by this regional tug is a matter for speculation at the moment, however. Should today’s reports on inflation indicate a downturn in growth, and thus demand, there is a chance that traders will take the news to mean the pound sterling will meet further resistance in the near future.

On tap today, traders will witness the release of moderately significant reports on inflation at the consumer and retail level in the UK at 9:30 GMT. Should the figures reveal stagnation in inflationary growth, we could see heftier flights to safety in the days and weeks ahead. This would likely push the value of the GBP lower over the long-haul as traders continue to flee risk in larger numbers.

AUD – Data Supports AUD Downturn

The Australian dollar (AUD) was trading mostly weaker versus its currency counterparts yesterday after data releases have begun to shift traders back into safety. The Aussie has been losing momentum these past few weeks as risk aversion becomes predominant in the global market. Fears emanating from the current market environment have led many to seek safety.

This movement has gouged the AUD against all of its currency rivals, especially against safe-havens like the Swiss franc (CHF) and Japanese yen (JPY). With significant reports released this morning, forex traders are highly likely to see heavy movement by the Aussie in today’s trading hours. News out of Japan yesterday is also expected to hike volatility throughout the Pacific countries of China, New Zealand and Australia. Pacific traders should be cautious in today’s trading.

Oil – Oil Prices Holding Steady amid Market Turmoil

Crude Oil prices held steady Monday as sentiment appeared to favor a mild uptick in global stocks following reports of monetary moves being made by several central banks. Data releases out of Europe and the US last week are still driving many investors back into safe-haven assets as many reports suggested a surprise downtick in growth among global industrial output and consumer spending.

An expected dip in dollar values due to this week’s risk sensitive environment has helped many investors ram up their long-taking positions on physical assets, but with the USD’s losses not materializing in large enough numbers, sentiment appears to have the price of crude oil holding steady. Should Crude Oil sentiment continue to flatten this week, oil prices may reach a decision point which forces a wide swing by mid-week.

Technical News

EUR/USD

Despite the increased volatility the EUR/USD continues to trade in a defined range between 1.4400 and 1.4050. Falling monthly stochastics suggest any approaches to the 1.4400-1.4500 levels may be sold into. Initial resistance comes in at last week’s high of 1.4400 followed by the falling resistance line from the May high at 1.4450. A close above 1.4700 would signal an end to the range trading environment. To the downside support is found at 1.4050 followed by the 200-day moving average at 1.3945 and the rising trend line from June 2010 at 1.3875.

GBP/USD

Last week’s declines found support near the previously broken trend line from the April high and the pair looks to move higher. Resistance comes in at 1.6475; a level sterling has failed to breach three times. A move above here and the technical picture would likely turn bullish with further resistance at 1.6550 and 1.6745. The 200-day moving average at 1.6090 could keep any declines in check with further support at 1.6000 and 1.5935.

USD/JPY

The yen has made two attempts to break through the all-time low that was set in mid-March near 76.25. Rising stochastics on the daily and weekly charts point to potential gains in the pair but short term momentum studies look to have more room to fall before the pressure is relieved. Therefore, a break of 76.25 is favored. After this level there is a lack of support on the monthly chart. To the upside initial resistance is found at last week’s high of 78.50 followed by the post intervention high of 80.20.

USD/CHF

In an amazing run the USD/CHF has gone from a complete free-fall to trade above its 20-day moving average, a level the pair has not seen since early July. After gapping above its initial resistance at 0.7800 the pair could run into resistance at 0.8080 which is also near the 38% retracement from the February high, followed by the trend line that falls off of the February high at 0.8200. This may provide traders better reentry levels into the long term downtrend of the pair. A further resistance level is found out at 0.8550.

The Wild Card

Oil

Spot crude oil prices have recovered from their early August lows near the $75 level in-line with improved market sentiment. Yesterday’s rally took the commodity to as high as $88. Should market sentiment continue to recover, forex traders might want to be long on crude oil with resistance levels found at $89.50, $93.50, and a final target of $99.50 off of the falling resistance line from the May, June, and July highs.

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.

The Swiss franc has come off of its lows versus the euro and the US dollar as Swiss interest rates have turned negative and the Swiss National Bank threatens a potential currency peg to the euro or a specific price target. This will be another attempt to stem the tide of a strengthening Swiss franc and potentially an opportunity to enter back into the EUR/CHF downtrend at better levels.

Two weeks ago the SNB unveiled a program to weaken the surging Swiss franc which it considers “massively overvalued”. The SNB is targeting a three-month Libor of 0.00-0.25% from 0.00-0.75%, effectively implementing a negative interest rate. The measures are designed to stem the flow of real money inflows and speculators betting on a rise in the value CHF. Negative interest rates are used to deter money managers seeking safe haven assets and short term deposits as a refuge. However, given the US credit rating downgrade and uncertainty in the euro zone, a negative interest rate may not be enough to deter real money inflows.

The SNB is now contemplating additional measures, including a temporary peg of the Swiss franc to the euro or a target exchange rate level as another attempt to stave off CHF appreciation. But a targeted exchange rate would require intervention by the SNB, something that the bank will want to shy away from after racking up $21 bn in paper losses from the intervention.

Should the SNB fail to implement further programs to weaken the CHF, a currency the OECD says is now 41% overvalued; the SNB could lose credibility in the market and be looked upon as a paper tiger. If the SNB implements a currency peg or a specific price (i.e. EUR/CHF 1.20), the initial market reaction may be for the CHF to sell-off, allowing speculators better levels at which to enter the long term trend. Following any appreciation in the pair there will likely be an attempt by the market and speculators to test the resolve of the SNB to hold the line in the sand. This will give traders a backstop as they know the most their position can go against them is the SNB price target.

Read more forex trading news on our forex blog.

Newmont Mining (NEM) said today it is in negotiations with several suitors regarding the potential sale of coal assets in Queensland, Australia. None of the possible acquirers has been named, nor has a sales figure been disclosed.

The #2 home improvement retailer in the nation, Lowes (LOW), reported a slight decline in fiscal second quarter earnings today. Lowes said earnings slid to $830 million, or $0.64 per share, from $832 million, or $0.58 per share, in last years second quarter, when there were more shares outstanding.