Month: December 2011

Source: ForexYard

As expected the Bank of England left its interest rate unchanged and did not add to its quantitative easing (QE) program today. The European Central Bank lowered its key refinancing rate by 25 bp. Investors are anticipating additional easing measures to be announced by Mario Draghi during his press conference today at 13:30 GMT.

The major currencies are little changed as a tense two days lie ahead for both European leaders and financial markets. Investor will likely react following Draghi’s press conference as traders are on the lookout for two major policy moves:

1. Additional loosening of ECB monetary policy in the face of an EU economy that is slipping towards a recession.

2. The likelihood of the ECB to support European nations with additional sovereign bond purchases.

Even if the ECB hints at additional rate cuts, should the ECB shows its willingness to buy more bonds of Italy, Spain, and Portugal, this may support the EUR going into the two day EU economic summit.

The EUR/USD has resistance at 1.3440 from the 20-day moving average followed by 1.3550 off of last week’s high. Support comes in at 1.3360 from the rising trend line off of the November low. A break here would expose the November low of 1.3210.

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.

London Gold Market Report
from Adrian Ash
BullionVault
Thurs 8 Dec., 08:35 EST

THE WHOLESALE gold and silver price both continued to rise in London on Thursday morning, recovering the week’s earlier losses despite what dealers called “lethargic”, “thin” and “quiet” trade ahead of tomorrow’s political summit aimed at rewriting European Union treaties to boost confidence in the Eurozone.

European stock markets also ticked higher, and the Euro recovered an early half-cent drop below $1.34, after the European Central Bank cut the 17-nation currency zone’s main interest rate by a quarter-point to 1.00% per year.

Ahead of the ECB’s monthly press conference – the second for new president Mario Draghi – gold prices flickered around €1300 per ounce and held above $1742 per ounce for Dollar investors.

The Silver Price pushed up to $32.80 per ounce by lunchtime in London, rallying more than 3.7% from Tuesday’s 1-week low.

“Volume is disappearing from the precious metals market ahead of [tonight’s] European summit,” said one Hong Kong bullion dealer overnight.

“Very thin volumes in the gold market,” agrees a dealing desk here London. “The market remains reluctant to sell gold aggressively ahead of…Friday.”

Gold holdings in the giant SPDR Gold Trust ETF slipped 3 tonnes to a 10-day low of 1,295 tonnes on Wednesday.

Holdings for the SLV Silver ETF added 30 tonnes, however, reach the largest level in more than 3 weeks at 9,726 tonnes.

“Given its lack of inherent drivers, we see silver continuing to trade as a higher-beta version of gold in the short to medium term,” said UBS precious metals strategist Edel Tully in a note yesterday.

“[Silver] trading is likely to be characterised by shorter-term plays by more gutsy investors.”

“Depressed base metals and crude tempered silver’s gains on [Wednesday],” says a note from bullion bank Scotia Mocatta in New York.

On a technical chart analysis, “The silver price is once again being supported by the 3-month support line,” writes Commerzbank’s Axel Rudolph in his latest client report.

Unless the silver price rises through $35.71 per ounce, however, “the $30.00 support zone (psychological level, mid-October low…) should remain in focus,” Rudolph reckons.

“Failure here will indicate that a new down leg is under way.”

Speaking ahead of meeting European Union political leaders yet again to discuss an urgent resolution of the Euro currency zone’s debt crisis, “The summit that we are going to starts tonight in Brussels is indeed a crucial one,” said president of the European Commission Jose Manuel Barroso on Thursday.

“What I expect from all heads of governments is that they don’t come saying what they cannot do but what they will do for Europe. All the world is watching us and what the world expects from us is not more national problems but European solutions.”

“Should the Euro explode…that would be a catastrophe not only for Europe and France but for the world,” said France’s minister for Europe Jean Leonetti to Canal+ television this morning.

But responding to the widely-leaked Franco-German proposals for closer fiscal ties in the 330-citizen Eurozone, “Automatic sanctions are a joke. Fiscal union needs collective, democratic decision-making that can respond to challenges & manage agg. [aggregate] demand,” said EU social affairs commissioner Laszlo Andor on Twitter.

Preparing to attend the meeting, British prime minister David Cameron said he was “very focused” on getting “safeguards [and] the best deal for the UK” – the second largest economy in the European Union after Germany, which fell out of the pre-Euro exchange-rate mechanism in 1992.

Non-Euro members will contribute a further €50 billion to a planned €150bn loan from Eurozone countries to the International Monetary Fund, an un-named EU official is quoted by the Associated Press, with the money then passed – through the IMF, to avoid breaching EU treaties – to distressed debtor states.

“The money would come from the central banks of the 17 Euro nations, not the governments, which are already highly indebted,” according to the diplomat.

“When is a €2.4tn balance sheet not enough?” asks the Lex column in today’s Financial Times. “When you are the lender of last resort to a banking system in quite such straits as that of Europe. It is time for the European Central Bank to bulk up its books yet again.”

But “we think it is very unlikely,” counters Steven Barrow, chief currency strategist at Standard Bank. “With any luck, the ECB is still getting to a point where it will act as a lender of last resort for governments but, even after this week, it might not be as close as the market thinks – and that could mean more divergence in Eurozone bond markets.”

Adrian Ash
BullionVault

Gold price chart, no delay   |   Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

The European Central Bank (ECB) cut its Main refinancing operations rate by 25 basis points to 1.00% from 1.25%.  Previously the ECB also cut the interest rate by 25 basis points at its November meeting.  The ECB last increased the interest rates by 25 basis points at its July meeting; pausing in May and June, after raising the rate by 25 basis points to 1.25% in April this year.  The Euro Area reported annual HICP inflation of 3% in November and October and September, 2.5% in August and July, 2.7% in June (same as May) and above the Bank’s inflation target of maintaining inflation below, but close to, 2% over the medium term.  

The Euro Area reported quarterly GDP growth in the September quarter of 0.2% (1.4% y/y); the same as the June quarter of 0.2%, following a 0.8% increase in the March quarter, and a 0.3% increase in the December quarter of 2010.  The Euro (EUR) us basically flat against the US dollar so far this year, while the EURUSD exchange rate last traded around 1.34

“The Coming Worldwide Bank run”

By Elliott Wave International

Lost in the clamor over the central banks’ “let there be liquidity” pronouncement, Standard & Poor’s just downgraded fifteen major U.S. and European banks.

The downgrade doesn’t mean Bank of America, Goldman Sachs, Citigroup, Barclays, UBS, Wells Fargo and others will close shop tomorrow. But the long-term credit downgrade does raise questions about their stability.

After all, the 2007-2009 financial crisis has supposedly passed. But during the two-year “recovery,” did most big banks really return to sound fiscal health? Well, Standard & Poor’s downgrade speaks for itself.

One reason for the downgrades was Standard & Poor’s own revision to its rating system. Nonetheless, CNBC reported (11/29), “The outcome of the re-rating of the biggest banks was worse than S&P has forecast for all banks.”

And apparently, the big banks were in worse shape in 2008 than most people realized. Thanks to the Freedom of Information Act, Bloomberg just revealed that banks got more bailout money from the Federal Reserve than was previously made public:

“The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy.”
— Bloomberg, November 28

And in light of the downgrades, what does this revelation say about assurances of financial stability that come from the banks today?

Please consider this insightful excerpt from the September Elliott Wave Theorist:

“The Coming Worldwide Bank run”
“In the late 1990s and mid 2000s, the loan-to-deposit ratio for U.S. banks was nearly 1.00, meaning that almost all deposits were lent out. That shortfall alone was a serious problem, because if even 5% of depositors had decided to withdraw their money, banks would have been unable to pay. Some of the banks’ loans were quickly callable, but by 2006, the credit-fueled real estate boom had claimed a large percentage of outstanding loans, both inside and outside the banking system. These loans are not quickly callable. The problem was serious in 2002 and enormous in 2006. Now it has become acute, because many loans are becoming fossilized, as the market for mortgage investing has dried up while foreclosures on the ‘collateral’ have been slowed by court actions and politics.

“The specter of a banking panic has become far darker since the collateral for bank deposits — land and buildings — has fallen globally in value at the steepest rate since the Great Depression. One day this shortfall in collateral value will impress itself on people’s minds, and there will be an unprecedented run on banks around the globe…. Yes, I know about the FDIC, but I don’t believe it will be able to fulfill its promises when most banks go bust.”

Notice the phrase in the last sentence of the quote, “most banks” This obviously implies that some banks are safer than others.

What is the best course of action to safeguard your money? Read our Free 10-page Report titled “Discover the Top 100 Safest U.S. Banks” to learn: The top two safest banks in your state. The 5 major conditions at many banks that pose a danger to your money. Robert Prechter’s recommendations for finding a safe bank. And more! Download your free report now.

Dec. 8 (Bloomberg) — Julian Callow, head of international economics at Barclays Capital, talks about the outlook for today’s European Central Bank and Bank of England interest rate decisions. He speaks with Owen Thomas, Francine Lacqua and Linda Yueh on Bloomberg Television’s “Countdown.” (Source: Bloomberg)

Join the Bforex Strategy Team in our Forex Review’s published each weekday -bringing you the latest market news and developments closely following the progress of major currency pairs and commodities.

By The Sizemore Letter

Risk on, risk off.  No four words could better describe the frustrating year that was 2011.  Yes, I realize that the year isn’t quite over yet.  We still have a few more weeks.  But I, for one, am ready for a fresh start in the New Year.  We’ve made money in 2011.  But it has been a lurching, nauseating roller coaster ride to get here, and we would have suffered a lot less heartburn had we simply taken the year off.

For those of us who consider ourselves value investors, the risk on / risk off trade is particularly frustrating because the market has made little distinction in 2011 between the wheat and the chaff.  When the market is in “risk on” mode, everything rises in lockstep with little regard for price or quality.  And investors differentiate even less in “risk off” mode, throwing out the baby with the bathwater.

If you’ve gotten whipsawed a few times in 2011, don’t feel bad.  Even some of the all-time investing greats have suffered an annus horribilis.  George Soros, the godfather of hedge fund managers, struggled to turn a profit this year and closed his funds to outside investors.  And Pimco’s Bill Gross—the Bond King himself—has had one of the worst years of his career, finding himself at the bottom of his peer group (see “The Bond King Does an About Face”).

Still, not everything has performed poorly.  Boring, consistent dividend-paying stocks have held up comparatively well, and “vice” stocks—particularly tobacco and some alcoholic beverage stocks—have had a phenomenal year.   As a proxy, take a look at Figure 1, which compares the performance of the Vice Fund (VICEX) to the S&P 500.

Figure 1: VICEX vs. S&P 500

Vice has a 10 percentage point lead, and this is in spite of the fund’s high allocation to gaming and defense stocks, which have not fared as well.

As investors, we’re not particularly interested in what performed well yesterday.  We’re far more concerned with what will perform well tomorrow. 

And therein lies the rub.  So long as we remain in this high-correlation risk on / risk off market, our investment performance will be intimately tied to shifting political winds in Europe.

If Europe’s leaders manage to reestablish confidence in their respective sovereign bond markets, then it’s “risk on” and commodities and lower-quality, more speculative stocks should do phenomenally well.  But if we have another setback—say, if a major piece of reform legislation gets torpedoed by squabbling among Euro states or a botched referendum—then it’s “risk off” and you better be in cash.

In honor of the movie release of Michael Lewis’ Moneyball, I’ll use a baseball analogy.  You run the risk of swinging big and missing if you bet on “risk on” and we end up with “risk off.”  But, if you bet on “risk off” and we end up with “risk on” you run the risk of getting a called strike as a potential home run pitch whizzes right by you.

In this environment of uncertainty, I recommend investing the way that Billy Beane’s early 2000s Oakland Athletics played baseball.  Go for steady, consistent wins.  You don’t have to hit home runs.  Just get on base and avoid striking out.

In my view, this means implementing a dividend-focused strategy.  Buy companies that survived the 2008 meltdown intact and actually raised their dividends that year.  At current prices, your risk of long-term or permanent loss is slim.  And if Europe “blows up,” you can be reasonably certain that your dividend checks won’t bounce.

For a good list of potential candidates, investors might want to take a look at the holdings of the Vanguard Dividend Appreciation ETF (NYSE: $VIG).  Every stock in the portfolio has raised its dividend for a minimum of 10 consecutive years—including the Armageddon years of 2008 and 2009.

If you liked this article by Sizemore Insights, you’d probably enjoy The Sizemore Investment Letter, our premium members-only newsletter. Click here for more information.

Source: ForexYard

ECB President Mario Draghi has hinted at his willingness to support European nations with additional bond purchases if European governments will move to restore investor confidence in the euro zone. But this announcement will likely only come following Friday’s EU economic summit and a concrete commitment by European nations to reign in their debt and budget deficits.

Economic News

USD – USD Driven by European Headlines

The USD is mixed as stress in Europe comes to a head over the next 2-days. There has been a lack of US economic data and therefore much of the movement in the G10 currencies have been coming on headlines from Europe. This scenario has played out over before with risky assets rising leading up to a European summit and the euphoria wearing off after the weekend. For examples of this type of price action investors may want to go back to July 21st and October 26th. Today we’ll get weekly unemployment data but the numbers will likely be overlooked as the ECB press conference coincides with the data release.

The USD DXY index may be telling of what’s to come. There appears to be a double top reversal pattern at 79.70 from the October 4th high and the November 25th high. The latest CFCT IMM data shows the USD DXY is at its longest positioning since the summer 2010. Therefore, the USD may be set for a reversal should Europe surprise the markets with some positive moves to shore up investor confidence by the end of this week.

EUR – An ECB Bazooka

EUR has been essentially trading on headlines and rumors for the past week. Yesterday was no exception with the Financial times story of a potential double bailout plan. The proposal to keep the EFSF when the ESM becomes active in mid-2012 was squashed by Germany. This combined with a larger turnout from banks for the ECB’s euro swap from EUR to USD kept the EUR on its back foot during yesterday’s trading. The swap is the first following last week’s coordinated central bank move to increase USD liquidity.

Today’s ECB meeting has a lot of expectations built into to it. A 25 bp cut in the ECB interest rate is anticipated as are additional liquidity measures. Volatility will likely taper off prior to Draghi’s press conference. ECB President Mario Draghi has hinted at his willingness to support European nations with additional bond purchases if European governments will move to restore investor confidence in the euro zone. But this announcement will likely only come following Friday’s EU economic summit. Only once Germany has secured an agreement to enforceable budget limits and suitable reforms from EU member nations would the ECB agree to unlimited bond purchases. The risk for the EUR is for Draghi not to support additional ECB moves to support the euro zone.

Then again, if the ECB saw a risk of deflation in the EU economy the ECB could step in with a form of quantitative easing (QE), affectively sidestepping the whole debate of blurring monetary policy and fiscal policy.

GBP – BoE Still Dovish but no Change Expected

The BoE meets today though this has gone largely unnoticed by many observers given the headlines coming from Europe. The BoE is expected to hold interest rates steady and in all likelihood will not increase its asset purchase facility. Yesterday manufacturing production was shown to have plummeted -0.7% during the month of October. Consensus forecasts were for a decline of only -0.1%. However, Monday’s UK services PMI unexpectedly rose to 52.1 from 50.6. The contrasting data will most likely not stop the BoE from loosening monetary policy in the near term as the central bank forecasts a sharp drop in inflationary pressures. The EUR/GBP has support at 0.8515 from the mid-November consolidation followed by the November 10th low of 0.8485. Resistance is located at the November 22nd high of 0.8660 and 0.8750 at the 200-day moving average.

Crude Oil – Crude Oil Inventories Soar

The weekly crude oil inventories report from the US Energy Information Administration saw a sharp rise in the level of crude on hold. This did not stop crude oil prices from moving lower with US equities. Like most other commodities crude oil prices will likely be subject to events in Europe for its direction. Should Europe come to an agreement to shore up the fiscally strapped nations crude oil will likely move higher in-line with higher yielding assets such as equities and the AUD.

Looking at the charts the price of spot crude oil tested the rising trend line from the October and November lows which comes in today at $100. While the angle of the trend line is too sharp to maintain a dip to $95 would not jeopardize the bullish technical picture.

Technical News

EUR/USD

The weekly chart shows the pair is trading in a symmetrical triangle pattern with the resistance line falling from the May high and support line rising from the yearly low. The first support from this chart pattern comes in this week at 1.3200. A break here will likely open the door to not only the October low of 1.3145 but also1.3050 from the 61.8% Fibonacci retracement of the bullish move spanning 2010 to 2011. The January low of 1.2875 could contain the near-term price action. To the upside the November 18th high of 1.3610 is the initial resistance followed by the mid-November consolidation at 1.3860 where the 100-day moving average also lies. The top of the triangle pattern would likely contain any move higher near 1.4230-1.2350.

GBP/USD

Last week cable found resistance at 1.5780, a level that has proven to be resistive in the past. Additional resistance is found at the October high of 1.6165. Monthly and weekly stochastics continue to move lower and as such the November low of 1.5435 is the initial support followed by the October low of 1.5270. The last bastion of support for the GBP/USD is found off of the rising trend line from the 2009 and 2010 lows which comes in at 1.0590.

USD/JPY

The USD/JPY is encroaching on its long term trend line off of the 2007 high and comes in at 78.70. A break above this level is needed to confirm the recent price appreciation. Both weekly and monthly stochastics are moving higher so traders may look for additional resistance at 79.50 from the post intervention high. The 200-day moving average is also lurking just below this price. Should the pair fail at the long-term trend line the congestion between 77.50-77.60 may prove to be supportive while the all-time low near 75.60 stands out as the last support.

USD/CHF

As weekly stochasttics have already turned lower the monthly stochastics are beginning to roll over. This is occurring after the pair looks to have failed to break above the 0.9330 resistance level. As such the pair has support at last week’s low of 0.9065 followed by the November low of 0.8760 and the October low of 0.8565. A break above the 0.9330 resistance could spur gains towards this year’s high of 0.9780.

The Wild Card

AUD/NZD

The technical picture for the AUD/NZD shows a triangle consolidation pattern from the November 18th high and the November 25th low. The initial resistance from the pattern is 1.3210 followed by 1.3380 off of the trend line from the yearly high. Forex traders should be aware that the breakout from this chart pattern typically goes in the direction of the trend but rule is not set in stone. Support is located at 1.3080 from the rising support line off of the November 25th low followed by the November 1st low of 1.2930.

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.

RBNZ keeps the OCR on hold at a record low 2.50%

The Reserve Bank of New Zealand kept the Official Cash Rate (OCR) on hold at 2.50%, noting the impact of global developments.  The Bank Said: “Domestically, economic activity continues to expand, though at a modest pace. Although off their peaks, export commodity prices remain elevated. In addition, the depreciation of the New Zealand dollar provides some support for the tradable sector of the economy. Over time, repairs and reconstruction in Canterbury will also provide a significant boost to demand for an extended period. Annual headline inflation is estimated to have returned within the Bank’s 1 to 3 percent target band in the December quarter. Underlying inflation continues to sit close to 2 percent. In addition, wage and price setting pressures have remained contained.”

Previously the Bank also held the OCR unchanged at 2.50%, while the Bank cut the rate by 50 basis points in March this year, following the Canterbury earthquake.  New Zealand reported consumer price inflation of 4.6% in Q3 this year, compared to 5.3% in Q2, 4.5% in Q1, and 4.0% in Q4 of 2010, and above the official inflation target of 1-3% as short term factors such as tax increases caused a spike in prices.  

The Bank of Namibia held its benchmark interest rate, the repurchase rate, steady at 6.00%, for the 6th consecutive meeting.  Bank of Namibia Governor Ipumbu Shiimi said: “the MPC is of the view that global economic growth has slowed down noticeably. Global financial markets have shown increasing signs of stress, in both advanced and emerging market economies. The domestic economy continues to grow at a slow pace, particularly in the primary sector. MPC also noted the recent rise in inflation, which was brought about by the rise in prices in specific consumer goods and services.”


The Namibian central bank also held its interest rate unchanged at its October meeting, after dropping the rate 75 basis points in December last year.  Namibia reported annual inflation of 6.1% on October, up from 5.3% in September, compared to 5.4% the previous month, 4.8% in July, 5.4% in June, 5.2% in May, and 4.8% in April.  Namibia’s currency is fixed against neighboring South Africa’s rand (ZAR), thus the Namibian central bank tends to follow the monetary policy decisions of the South African Reserve Bank.