Month: November 2011

Nov. 10 (Bloomberg) — Jane King summarizes the top stories this morning on the Bloomberg Business Report. (Source: Bloomberg)

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 ForexYard

The trigger for yesterday’s slide in the EUR was when LCH Clearnet raised its margin requirements for Italian bonds, forcing some banks to put up additional capital or sell their positions. Most chose the latter and thus pushed up the yield on 10-year Italian BTPs above 7% to a new EMU record. The EUR collapsed with Italian bond prices, ending the period of consolidation that the FX markets have seen since early last week.

Economic News

EUR – Italian 10-year Bonds Yielding 7%

The EUR received a small bounce following Berlusconi’s resignation though the gains in the EUR only provided EUR bears an opportunity to enter at a more attractive price. Concerns over the political situation in Italy have not supported risk sentiment with European bourses shedding more than 2% on average. The eventual departure of Berlusconi masks the reality on the ground in Italy which does not immediately change without the implementation of both fiscal and economic reforms which may prove difficult to implement given the political situation.

Traders sent the EUR lower across the board, ending the period of consolidation with the major FX pairs. Key resistance remains at the 1.3850 level from Tuesday’s high. For the EUR/USD a decisive break below 1.3500 could spur additional declines to 1.3190 from the October low.

It is difficult not to see similarities between yesterday’s collapse in the value of Italian bonds and the decline in gold prices from late August. Both sharp price moves followed an increase in margin requirements. In August the Shanghai Gold Exchange raised margin requirements by 26% and the CME followed suit with a 22% increase. Yesterday LCH Clearnet raised its margin requirements by more than 11%. Forex traders should be aware of events such as these which can spark a selloff in assets as traders reduce their leverage used.

GBP – BoE to Meet Following Disappointing Trade Deficit Data

Today the Bank of England will meet in the shadow of the European debt crisis and a disastrous UK trade deficit report. The data for the month of September showed the trade deficit rose to its highest level as exports gained slightly while imports soared. The bearish tone of the report was increased as the August deficit was also revised higher. This offsets the surpassingly positive August report that showed a sharp increase in exports. The data is troubling for the UK economy as the euro zone is the UK’s largest export market and the currency bloc looks to slip into a mild recession.

The BoE will meet today and is not expected to adjust interest rates. Nor is the BoE forecasted to increase the level of bonds it is currently purchasing to support the UK economy. Inflation continues to run above 5% though market inflation expectations are beginning to move lower as rising prices have not resulted in rising UK wages.

The EUR/GBP has moved below its long term rising trend line from the June 2010. A significant close below 0.8550 would increase bearish technical sentiment. A lack of support is apparent on the charts and the EUR/GBP could eventually slip to the 2011 low at 0.8280.

SEK – Riksbank to Hold Interest Rates Steady

The release of the Riksbank meeting minutes from the last monetary policy meeting showed the Executive Board of the Swedish central bank decided to hold interest rates at the current 2% level until at least next year.

Swedish interest rates currently stand at 2% and the Riksbank said in light of the fiscal difficulties in the US and Europe the bank will pause in its rate hiking cycle until 2012. Citing a lower level of consumer confidence the Swedish economy will likely grow at a more moderate pace, reducing the need for additional rate hikes. One member of the Executive Board was in favor of a 25 bp rate cut.

CPI was in-line with forecasts at 3.2%. The Riksbank expects inflation will decrease to 2.6% in 2014 with the repo rate to be increased to 3.5% towards the end of 2014.

The Swedish krona initially reacted positively to the release of the monetary minutes but the USD/SEK failed at Tuesday’s low of 6.5215 and turned higher as the USD gained on Italian debt concerns. Resistance for the USD/SEK is found at the November high of 6.6665 followed by the October 18th high of 6.7177.

Crude Oil – Crude Falls with Risk Sentiment

Yesterday’s drop in risk sentiment helped to slow the rally spot crude oil prices have seen since the beginning of October. After falling to a low of $75 the price of crude oil has added $20 in just over one month. Most recently spot crude oil prices bounced higher as it became apparent that Iran has been attempting to develop nuclear weapons according to the UN nuclear watchdog. With the release of the UN’s report sharp rhetoric from Tehran has increased with talk of war which is typically a positive for crude oil prices. Should the period of uncertainty in financial markets subside crude oil prices could test the psychological $100 level.

Technical News

EUR/USD

After the pair recovered to its long term trend line from the June low the EUR/USD failed to move above the previously broken trend line which turned into a resistance level. Weekly stochastiscs have rolled lower and point to additional declines in the pair. Initial Support is found at last week’s low of 1.3600 and a break here could have the pair testing the October low of 1.3145. Resistance is located at the 200-week moving average at 1.3980 followed by the October high of 1.4250.

GBP/USD

The GBP/USD continues to be buoyant with the pair forming a base at its 55-day moving average at 1.5860 though weekly stochastics are beginning to cross which hints at a decline in the price. A break below last week’s low of 1.5875 could have scope to 1.5630 from the October 18th low, a level that is close to the 61% Fibonacci retracement from the October bullish move. Resistance is capped at the pair’s 200-day moving average near 1.6140, followed by 1.6530 off of the trend line from the April and the August highs.

USD/JPY

The MOF intervened in the market when the USD/JPY was at a new all-time low and ensured that both the weekly and monthly candlesticks would make an outside day up, a bullish candlestick. However, the failure of the pair to break above the falling trend line off of the 2007 and 2010 highs show the long term downtrend remains intact. Initial support is found at 77.80 from the September high followed by 77.50. The resistive trend line comes in at 79.50.

USD/CHF

A cross of the 50-day moving average above the 200-day moving average will likely take place within the next few days and is a bullish technical move. Initial resistance is found from the October 20th high of 0.9080 followed by the October high of 0.9310. Support is back at Thursday/Friday’s low of 0.8760 followed by the October low of 0.8565.

The Wild Card

EUR/JPY

Like many of the EUR crosses the EUR/JPY collapsed below its recent consolidation pattern. Forex traders should eye the 104.75 level from the October low. A break here would open the door to the 100.75 low of September. Resistance is found back at the previously broken support line from the consolidation at 106.70.

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.

Source: ForexYard

A rebound in Italian bond prices has helped European equities recover some of yesterday’s losses. The EUR has also retraced some of its declines but the short term move may have only offered traders better prices at which to reenter short. This afternoon will bring trade balance data from both the US and Canada while events in Europe continue to dominate the headlines.

A successful Italian debt auction has helped equities and the EUR in the aftermath of yesterday’s declines but all is not well in Italy. The fiscally strapped nation paid an EMU high yield for 12-month Treasury bills. Also the 10-year Italian BTP traded higher this morning with the yield falling to 6.94%, a sign bond markets remain concerned over Italian finances.

The EUR/USD has moved higher to 1.3625, the 38% Fibonacci retracement level of yesterday and today’s move (1.3858 to 1.3483). The pair has once again turned lower from here. This retracement may have offered some traders better levels at which to reenter the downtrend. Support is at today’s low of 1.3483 and the 100-week moving average comes in at 1.3310. Resistance is higher at 1.3680 from the November 7th low.

This afternoon the BoE will announce its interest rate and Asset Purchase Facility. No changes are expected from the BoE.

The US and Canada will release their trade balance figures for September. There are no expected shocks to come from the reports as markets continue to focus on events in Europe. The USD/CAD has rallied on the back of USD strength. The pair failed to breach the 1.0263 resistance from October 18th but the MACD indicator is turning positive and a test of the 1.0656 high is possible.

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.

Nov. 9 (Bloomberg) — Kathy Lien, director of currency research at the online trading firm GFT Forex, discusses her investment strategy. Lien also discusses so-called safe haven currencies and the U.S. dollar’s status as a reserve currency. She speaks with Lisa Murphy on Bloomberg Television’s Street Smart.” (Source: Bloomberg)

Source: ForexYard

The EUR is down 3.5% versus the USD since Tuesday’s high. This morning the EUR/USD briefly tested 1.35. The big round number is a key psychological level, but trying to pick a bottom in the latest EUR slide is like trying to catch a falling knife.

A push below the 1.3500 level was brief, though it may be too early to call the EUR/USD oversold. Short term technical indicators continue to move lower and there may be more room for the pair to fall. There is only modest support on the way down to the October low of 1.3145 and the weekly chart may hold the clues.

Should the 1.3500 level fail to hold, the 100-week moving average comes in at 1.3310. There is also potential support from a rising trend line off of the June 2010 and October 2011 lows which is found at 1.3290. Should the EUR/USD attempt to form a base, additional selling pressure may be seen at 1.3600.

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 MoneyMorning.com.au

“U.S. stocks slumped, driving the Standard & Poor’s 500 Index to its biggest decline since August, amid concern that European leaders may be unable to keep the euro zone intact as Italian yields surged to a record.” – Bloomberg News

Clearly the investors who sold down the U.S. market 3.67% overnight aren’t Money Morning readers.

Because if they were, Europe’s problems wouldn’t be a surprise.

The same goes for most Aussie investors who are running for the exit this morning… pushing the S&P/ASX 200 down 3% at the open.

But the big news overnight was the Italian 10-year bonds. Yields reached the highest level since the creation of the euro currency in 1999. The cost for Italy to issue debt is now 7.25%.

The chart below shows the six-month progress of the Italian 10-year bond. The red square is where the yield stands after last night’s move:

Click here to enlarge

But don’t panic. European leaders are still trying to come up with a plan… oh, hang on, maybe you should panic.

Let’s show you why…

So you can see why Italy’s yield action could be just the beginning of its problems. Take a look at the chart below of Greek 10-year bonds:

Click here to enlarge

Those bond yields hit 7% in April 2010.

A few weeks later, after bond yields had soared above 10%, the market cheered. The Independent newspaper reported:

“Global markets surged in relief yesterday at the €720bn (£616bn) Eurozone stabilisation package put together to allay fears of contagion from the Greek sovereign debt crisis…

“Greek 10-year bond yields fell by 499 basis points [4.99 percentage points] and two-year yields fell by a record 1,327 basis points [13.27 percentage points] as panic about the restructuring deal receded.”

The joy didn’t last long. Nineteen months later and the Greek 10-year bond yield hit 30%… and two-year bond yields are now 107%! So much for the “Eurozone stabilisation package”.

Which brings us back to yesterday’s Money Morning:

“The markets love the latest non-event from Italy. But the excitement will soon wear off and the market will fall. Then we’ll get another non-event… which the market will love… until that wears off too.”

We’ll repeat: the market is so volatile you can’t just pin your flag to the bullish or bearish side of the market…

You’ve got to play both sides.

Let’s get something straight. Of course Italy will need a bailout…

The only thing that’s not certain is how they’ll do it…

Will it be a Greek-style default? Or will it be U.S.-style money printing? It’s the difference between being honest (default) or deceitful (money printing)…

Put another way, will they stab investors in the chest or in the back?

Neither is pleasant. But at least you’ve got a better chance of defending yourself if you know what’s coming.

It’s also important to remember the real criminals in this – governments, central banks, bankers and progressives – will look for a scapegoat to shift the blame.

Rather than admit the European debt problem is due to failed economic, financial and political systems, they’ll pin the blame on so-called bond vigilantes.

This is a term for investors who look to profit from falling bond prices. They’ll claim nations are being punished by bond traders who unfairly push bond yields too high by selling or short selling bonds.

(When bond prices go up, bond yields go down and vice versa.)

In reality, bond traders are just taking a position in the market. And don’t forget, for every seller, there’s a buyer.

What’s more, short-sellers provide a useful service to the market. They warn other investors of potential problems. Using Greece as an example again, in early 2010 commentators and investors pinned Greece’s debt problem on bond vigilantes.

At the time, Greek finance minister, George Papaconstantinou told a press conference:

“A number of people have been betting in certain ways [on a Greek default and debt restructuring]. All I can say is they will lose their shirts. I want to categorically restate that any notion of restructuring is off the table for the Greek government.”

He was right. Some short-term traders probably did lose their shirts. Business Insider noted at the time, “Greece’s ten year bond yield has collapsed a remarkable 47% to 6.6% from 12.4% (as bonds surged) just before Europe’s new bailout fund was announced…”

But the traders who kept short-selling Greek debt gained a whole new wardrobe. As the chart before shows it didn’t take long for yields to climb. And short sellers could have pocketed a 354% plus gain as Greek bond prices collapsed.

Could the same happen to Italy?

It’s possible. The consensus is Italy’s debt is too big to be bailed out… and it’s probably too big for a Greek-style restructuring.

That tells us you’re more likely to see something underhanded (a stab in the back for investors). But, as always, we’re not saying Italian bond yields will keep climbing in a straight line from here.

As with Greece, we’re sure European leaders will give investors plenty of false hope. Just make sure you don’t fall for the spin.

Because, if you only buy stocks because you think they look cheap, you’re taking a much bigger risk than investors who supplement their buying by selling and short selling stocks.

The market rallied recently because investors foolishly thought European politicians and bureaucrats could solve the problem. As we’ve said all along, the very involvement of politicians and bureaucrats is a sure sign the problem won’t be solved…

In fact, it’s only likely to get worse.

Cheers.
Kris.

P.S. If you didn’t watch it yesterday, don’t forget to check out Slipstream Trader, Murray Dawes’ latest free weekly video update. You can click here to get the Slipstream Trader YouTube channel now.

In the latest episode Murray talks about the market’s key levels of price support and resistance. And how what’s happening now has a familiar ring to it.

Lose a Shirt, But Gain a Wardrobe

By MoneyMorning.com.au

[Wednesday’s] market rally has me stumped. It’s certainly pushing me to the limit of my bearish view.

I think the next week is basically going to prove me right, or I will have to capitulate and say that I’m wrong to be bearish.

Let’s have a look at a long term S & P 500 chart:

Click here to enlarge

Right now, we are very close to a point where the market needs to decide whether it can keep rallying, or will the long term downtrend reassert itself and fall over? At the moment, my view is the long term down trend will take over.

I want to compare where we are now, with the past price action we saw in the late 2007 and early 2008 sell-off.

Click here to enlarge

Have a look at the point of control. It’s the mid-point of this trading structure, and usually the point of resistance in the future.

Consider the point of control as a gravitational point around with trading swings.

You can see that we had the initial sell off in late 2007 and early 2008. The chart clearly shows that we broke through the 200-day Moving Average (MA) and then created a small distribution in the lower section, leading to a false break of that low. Then, we got a rally all the way back to the 200-day MA.

The market spent a month around that 200-day MA, rallying up to the upper point of control.

After we turned back down, the selling drove us back below the 200 day MA, pushing it down from that high in early February 2008. This created the false break of that distribution.

That was the beginning of the selloff… and where the market started to crash from.

Compare that price action around the point of control to what we are experiencing now.

Again the charts tell us a similar distribution is forming:

Click here to enlarge

As the market sold off through the 200-Day MA in July this year, it led to a quick selloff for a few weeks, creating another distribution. These movements led to a false break of the low.

So we’re now facing a market that has rallied all the way back through the 200-Day MA.

It’s decision time.

The S&P500 should find resistance near this point of control at 1300, and then turn back down towards the lower distribution… or it’s going to break through that point of control and continue the uptrend.

I’ll either be proven right that this market should fall over soon, or we are going to see the Santa rally and a big move to the upside, which would truly amaze me.

The similarities between 2008 and now are uncanny. If the relationship holds then we are getting very close to a major selloff.

Click here to enlarge

The next week is certainly going to be worth watching.

Murray Dawes
Slipstream Trader, 9 November 2011

[Ed note: If you want to keep up to date with Murray’s free weekly analysis of the markets click here to subscribe to his YouTube Channel.]

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For editorial enquiries and feedback, email [email protected]

Slipstream Trader Free Market Update – 9 November 2011 (Edited Transcript)

Like many 1^st year university students away from home for the first time, Italy is facing the consequences of a series of poor credit decisions. While most students understand and appreciate how to manage personal debt, others find the collection of credit card application forms typically included in the ubiquitous new student welcoming packages to be too tempting. For these unfortunates, difficult lessons lie ahead.

In the same way, Italy is about to come face-to-face with its own dubious credit history.

For months now, investors have made known how they feel about the chances that Italy will be able to meet its future obligations. Wednesday marked the third consecutive day where yields on Italian debt rose to a new euro-era record with ten-year yields jumping more than a full percent to trade at 7.45 percent. The yield on shorter debt rose even more climbing 1.19 percent to 7.3 percent on two-year bonds.

Despite being forced to offer a premium of more than 300 percent, Italy must continue to entice investors to extend further credit. Simply put, Italy is obligated to borrow funds in order to cover its operating costs – a good portion of which includes the repayment of maturing debt. In other words, Italy, is using one credit card to make the minimum payments on its other credit cards.

Italy’s government has pledged to reduce spending and increase revenues by hiking taxes. However, as we know from watching Greece deal with its own deficit issues, committing to such a pledge is the easy part. Gathering the courage to pass the required legislation and actually implement a program even as public protests and political oppositions grows in intensity – well, that’s a different matter.

Just ask former Greek Prime Minister George Papandreou.

Source – IMF World Economic Outlook

Greece 2011 GDP – estimated $312 billion
Italy 2011 GDP – estimated $2.05 trillion

Scott Boyd is a currency analyst and a regular contributor

USDCHF continued its upward movement from 0.8569 and the rise extended to as high as 0.9112. Support remains at the uptrend line on 4-hour chart, as long as the trend line support holds, uptrend could be expected to continue, and next target would be at 0.9200 zone. Only a clear break below the trend line could indicate that the rise from 0.8569 is complete, then the following downward move could bring price to 0.8000 area.