Whether its year end book closing/profit taking and/or renewed doubts about the shape of recovery, asset markets have turned south recently.  Investor mood appears to be souring as risk aversion creeps back into the market psyche.  A string of disappointing US data releases over the last week including core retail sales, Empire manufacturing, industrial production, and housing starts, contributed to the reduced appetite for risk, resulting in a soft finish to the week for equity markets and a firmer USD.

Things are likely to take a turn for the better this week, however. Data will shed a little more light on the pace and magnitude of economic recovery and could result in some improvement in appetite for risk trades.  Despite an expected downward revision to US Q3 GDP, forward looking data on home sales, durable goods orders and personal income and spending as well as consumer confidence are likely to reveal increases.  In the Eurozone, data economic releases will paint a similar picture, including an expected increase in the closely watched barometer of business confidence, the German IFO survey. 

At the least economic data will remove some, but by no means all doubts about a relapse in the recovery process.  There is no doubting the veracity of the recovery in equity and commodity prices, despite doubts about its sustainability. Central banks may not react uniformly to this and the policy impact could vary significantly.  Already it appears that the ECB is moving more quickly towards an exit strategy compared to the Fed.  Although ECB President Trichet highlighted that the crisis is far from over at the end of last week, the Bank announced tougher standards for asset backed securities used as collateral, indicating that the need to provide emergency support to banks is much lower than it was. 

Clearly the ECB wants to avoid letting the market become over dependent on the central bank and will look to implement measures to this aim.  In contrast, the Fed is showing little sign of beginning this process and at least one member of the FOMC, namely St. Louis Fed President Bullard, was quoted over the weekend advocating that the Fed keep its MBS buying programme beyond its scheduled close in March. Evidence of the contrasting stance is also reflected in the fact that the Fed’s balance sheet is expanding once again whilst the ECB’s is contracting.  As a result of firmer data and comments by Bullard the USD is set to go into the week under renewed pressure, albeit within well defined ranges.

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• Dave Rosenberg 11/16/2009
• The Debt Economy
• 6 REASONS RICHARD RUSSELL WANTS TO OWN GOLD
• Devon Raises the ‘Big’ Question
• SGF October Monthly Update
• MEREDITH WHITNEY IS NOW CALLING FOR A DOUBLE DIP
• The not-so-small small bank CRE problem
• China Rejects View PBOC Shifted on Yuan, Morgan Stanley Says
• Drug Makers Raise Prices in Face of Health Care Reform
• Can ETCs replicate the carry trade?
• Arbitrage-free merger arbitrage
• U.S. Wholesale Prices Show Few Inflation Pressures
• Funds eye poor performer wheat in hunt for laggards
• High-flying currency hits Eurozone companies
• Tanker Sector Should Float Your Boat

The not-so-small small bank CRE problem

Posted: 16 Nov 2009 08:42 AM PST

Moreover, unlike for residential real estate, the best assets have been securitized in CMBS, and banks tend to hold in their loan portfolio the riskiest assets.

ETFDesk users see this as a potential opportunity to: sell KBW Regional Banking ETF;

Check out how others are using ETFs to capitalize on this news or add your own opinion

China Rejects View PBOC Shifted on Yuan, Morgan Stanley Says

Posted: 16 Nov 2009 11:36 PM PST

“I consider this…effort by Chinese authorities to dismiss the renewed speculation of renminbi appreciation in the near term,” Wang Qing, chief Asia economist for Morgan Stanley in Hong Kong, wrote in a note to clients today.

ETFDesk users see this as a potential opportunity to: sell WisdomTree Dreyfus Chinese Yuan Fund;

Check out how others are using ETFs to capitalize on this news or add your own opinion

Drug Makers Raise Prices in Face of Health Care Reform

Posted: 17 Nov 2009 12:02 AM PST

In the last year, the industry has raised the wholesale prices of brand-name prescription drugs by about 9 percent, according to industry analysts. That will add more than $10 billion to the nation’s drug bill, which is on track to exceed $300 billion this year.

ETFDesk users see this as a potential opportunity to: buy Pharmaceutical HOLDRS;

Check out how others are using ETFs to capitalize on this news or add your own opinion

Can ETCs replicate the carry trade?

Posted: 17 Nov 2009 12:08 AM PST

“The benefit of a currency ETC is that it provides exposure to local interest rates. It’s safer than putting money in a foreign bank account,” Mr Bienkowski said.

Check out how others are using ETFs to capitalize on this news or add your own opinion

Arbitrage-free merger arbitrage

Posted: 17 Nov 2009 12:21 AM PST

I think most of the IndexIQ ETFs are silly, but they nailed this one. Merger Arb ETF to hit the market, Convertible arb next?

Check out how others are using ETFs to capitalize on this news or add your own opinion

U.S. Wholesale Prices Show Few Inflation Pressures

Posted: 17 Nov 2009 12:27 AM PST

A Labor Department report on Tuesday said that higher food and energy costs contributed to a seasonally adjusted 0.3 percent rise in the producer price index, which measures the cost of goods to companies. That fell short of the 0.5 percent jump forecast by economists.

ETFDesk users see this as a potential opportunity to: buy iShares Lehman TIPS Bond Fund; buy PIMCO Broad U.S. TIPS Index Fund;

Check out how others are using ETFs to capitalize on this news or add your own opinion

Funds eye poor performer wheat in hunt for laggards

Posted: 17 Nov 2009 12:56 AM PST

Prices have been weighed down by growing stocks following a record global harvest in 2008 and the second-largest harvest in history this year, but there are signs that the tide may finally be beginning to turn. RJA – 20% Wheat

ETFDesk users see this as a potential opportunity to: buy ELEMENTS – Rogers International Commodity Index Agriculture Total Return;

Check out how others are using ETFs to capitalize on this news or add your own opinion

High-flying currency hits Eurozone companies

Posted: 17 Nov 2009 12:57 AM PST

The strength of the euro is hitting the profits and sales of companies in the eurozone sharply, in spite of the emerging economic recovery in the region.

ETFDesk users see this as a potential opportunity to: sell iShares MSCI-EMU; sell iShares MSCI-EAFE;

Check out how others are using ETFs to capitalize on this news or add your own opinion

Tanker Sector Should Float Your Boat

Posted: 17 Nov 2009 01:02 AM PST

FBR Capital Markets WE ARE UPGRADING OUR tanker industry outlook to Overweight based on our expectations for marked improvement in the supply/demand balance in 2010.

ETFDesk users see this as a potential opportunity to: buy Claymore/Delta Global Shipping Index ETF;

Check out how others are using ETFs to capitalize on this news or add your own opinion

My view of the EU is somewhat all-encompassing. I’d happily see more powers bestowed on the institution. But here in the UK the word sovereignty rules above all – no pun intended.

When discussing the issues surrounding UK and the EU my friends ask me why did they join to begin with if they don’t like it. They joined in 1973 when the EU didn’t even exist but was just European Communities. Back then it was a peace project based on an economic alliance. It wasn’t until the Maastricht Treaty that EU emerged as it is this day with a lot more than just economics to it.

So sovereignty is a touchy issue because what the EU is doing these days is “taking away” the powers in London and moving them to Brussels. And this is admittedly not what they signed up for in 1973.

BBC's treatment of the correlation between recession in the UK and eurozone

But lets look at what they did sign up for, namely the common market. The latest headline has been about how eurozone has left recession but yet “the UK is still mired in its worst slump since World War II“. The article on BBC’s website explains that this is because of the make-up of the industries in UK – having a larger financial sector has certainly contributed to his. But also, interestingly enough, the article refers to the social benefits available in France and Germany example are more equipped to help the worse off than the British one. So the kind of looser welfare state the UK is so advocating is not actually doing any favours to it.

I find this a very interesting opinion coming from the BBC. It could be taken to be a subtle pun at the Conservatives’ plans to opt-out of social and employment legislation of the EU, don’t you think?

As is now usual, good news, like the end of a recession, comes with provisos. So while it’s great that the Eurozone has officially moved out of recession, it doesn’t mean we’re out of the woods yet. Economists had expected 0.5% growth quarter-on-quarter, but the best Eurozone countries could do was 0.4%.  Pessimists believe the low figure indicates a slower than hoped for recovery.

Two of Europe’s biggest economies, France and Germany, help drive overall growth… From VOA. Full story

This site may contain information about: definition of economic recession. The blog is also related to: growth recession.

There was some collective economic hope around the continent of Europe today as figures emerged detailing growth in the Eurozone economy between July and September. The 16 nations that operate under the euro grew 0.4%, after shrinking by 0.2% between April and June. The EU as a whole, including non-eurozone countries (including the UK and Sweden) – also grew 0.2% in the third quarter of 2009.

However, there are still questions as to whether this growth is sustainable as the French and German economies grew less than expected.

There is already a great deal of reaction to these figures available from many sources online:

Eurozone escapes recession – Financial Times

BBC News – Eurozone emerges from recession

Yahoo News – Eurozone emerges from recession in 3rd quarter

The Euro Zone grows again | The Big Picture

Eurozone Finally Growing Again (0.4%), But France And Germany …

Eurozone GDP Breaks Through Zero… Concerns Still There

Forex Traders » European Market Update: Euro-Zone moves out of Recession

What is your opinion of this news? Is this a sign of a long term sustained recovery throughout Europe in 2010?

The eurozone economy has emerged from recession after growing between July and September, figures show…. From BBC News. Full story

This site may contain information about: recession trends. The blog is also related to: uk recession.

(GREEK NEWS AGENDA) Greece has failed to take the necessary measures to cut its fiscal deficit, according to the directions offered last spring by the EU Council, the European Commission (EC) announced on Wednesday, before recommending that the country be placed under excessive deficit procedure of Article 104(8) of the Treaty of Maastricht.

Responding to this, Finance Minister George Papaconstantinou said that the government is determined to restore the credibility of its macro-economic statistics and reduce its large fiscal deficit.In its autumn forecasts, released last week, the EC sees Greece’s budget deficit remaining above 12% of GDP through 2011 – at 12.2% in 2010 and 12.8% in 2011. “We do not share the EC’s projections that see the deficit over 12% in the coming years. This projection was made without taking into account the change in policy,” said Papaconstantinou, who believes he can lower the budget deficit to below 10% next year. “We are changing policy and this will be reflected in the next budgets,” he said.
Kathimerini daily:Eurozone concerned about Greece

Budget Deficits Soar Out of Control in Eurozone, Germany, US, UK, Japan; Yen’s Last Hurrah

by Michael Shedlock

Budget deficits are soaring and printing presses are running at full steam everywhere you look including Germany and the Eurozone countries. Please consider Recession Upends German Zeal for Fiscal Prudence.

It has come to this: Germany will almost certainly have a bigger budget deficit next year than Italy will. Traditionally, Germany is the Continent’s keeper of fiscal rectitude, perpetually fretting that the Italians and other free-spending Southern Europeans are about to undermine the euro and rekindle inflation by not reducing their red ink.

But in 2010, the German deficit is expected to total 6.5 percent of its gross domestic product, while the Italian gap is forecast at 6.2 percent of G.D.P., according to Deutsche Bank.

The German shift underscores just how profoundly the economic and political situation has changed in Berlin, as well as how desperate Chancellor Angela Merkel is to restore growth in Europe’s largest economy as she begins her second term.

Given the longstanding aversion to borrowing and spending that has shaped German fiscal policy since the great hyperinflation of the Weimar era during the 1920s, Mrs. Merkel and her new finance minister, Wolfgang Schäuble, have set off a fierce debate by proposing to cut taxes by 24 billion euro, or $35.9 billion, in 2010 and 2011, rather than immediately attack the country’s projected budget gap.

The terms of the treaty that created the euro currency are supposed to limit each country’s deficit to no more than 3 percent of its G.D.P. None of the 16 countries that use the euro are expected to meet that goal soon, however, with the typical budget deficit projected to reach a record 6.9 percent of G.D.P. next year, according to the European Commission.

But for all the efforts to keep everybody on board, Mrs. Merkel could be on a collision course with much of the business community, as well as Axel A. Weber, the head of the Deutsche Bundesbank, who sits on the governing council of the European Central Bank in Frankfurt.

In a speech last month, Mr. Weber set 2011 as a crucial deadline for Europe to begin digging out of the stimulus measures and deficit spending now under way.

“Given the enormous rise in public deficits and the strain this will put on future budgets, the fiscal exit strategy will have to kick in as soon as the recovery has firmed up, which means no later than 2011,” he said.

Among ordinary Germans, the desire for fiscal discipline still runs deep as well, setting the stage for further tensions down the road if the economy lags.

A poll published last month by Forsa, the independent polling institute, showed that only 22 percent wanted tax cuts if they would lead to a wider budget deficit and more public borrowing. Nearly 70 percent were against the idea.

Moreover, a new law limits federal deficits to 0.35 percent of gross domestic product from 2016 onward and no longer allows the federal states to run deficits at all from 2020 onward.

I am all in favor of cutting taxes but the problem is government spending.

Not a single country is the Eurozone is close to the 3% budget deficit pledge required to adopt the Euro. Does anyone think the Eurozone countries will adopt balanced budgets by 2020? I don’t but we can hope.

Right now, Europe, including Germany looks like a basket case except compared to the US and Japan.

US Federal Deficit As Percent Of GDP

Inquiring minds are looking at a chart of US Federal Deficit As Percent Of GDP.

The 2009 projection is a whopping 12.93% and 2010 sits at 8.54% compared to a 6.9% Eurozone projection for 2010.

Japan’s Deficits

The Wall Street Journal is asking Can DPJ Rein In Japan’s Deficits?

The DPJ campaigned on a platform of people-first social services, promising to boost domestic demand by easing the financial burden on households with a child-care allowance, health-care changes and the elimination of highway tolls.

The proposals are expected to cost some seven trillion yen, or around $75 billion, in the fiscal year starting April 2010, rising to 16.8 trillion yen in the fiscal year ending March 2014.

As it stands, next year’s initial budget is on track to require 21.9 trillion yen to finance Japan’s public debt, or about 170% of gross domestic product, the highest among industrialized nations, the Finance Ministry said Monday.

According to Stratfor’s analysis of Japans’s Budget “Further deficit spending will push Japan’s budget deficit above the 8.5 percent of GDP recorded in 2008 and the government debt of 170 percent of GDP even further into uncharted territory.”

Stratfor’s total was before the landslide victory for the DPJ in Japan.

The victors have an emotive name for it: seiken kotai, or regime change. It came in brutal fashion on Sunday August 30th when Japan, Asia’s richest democracy, dumped the party that has ruled it for almost all of the last 53 years and gave a huge win to one that until recently had little idea of how it would govern.

In a historic result, unofficial results showed that the Democratic Party of Japan (DPJ), a leftist grouping of ruling-party renegades, social democrats and socialists, was heading for a landslide.

It is led by Yukio Hatoyama, a mild-mannered career politician likely to be the next prime minister. He promises a government less beholden to the powerful civil service, wants to temper the free market and is keen to dole out cash to the disadvantaged in the economically stagnant and ageing country.

Good luck with that ideology.
Japan looks like a basket case compared to anything else, even the US.
Deficits will crush Japan far sooner than the US in my opinion.

Yen’s Last Hurrah

Please consider Rising Debt a Threat to Japanese Economy.

How much debt can an industrialized country carry before the nation’s economy and its currency bow, then break?

The question looms large in the United States, as a surging budget deficit pushes government debt to nearly 98 percent of the gross domestic product. But it looms even larger in Japan.

Here, years of stimulus spending on expensive dams and roads have inflated the country’s gross public debt to twice the size of its $5 trillion economy — by far the highest debt-to-G.D.P. ratio in recent memory.

Just paying the interest on its debt consumed a fifth of Japan’s budget for 2008, compared with debt payments that compose about a tenth of the United States budget.

Yet, the finance minister, Hirohisa Fujii, suggested Tuesday that the government would sell 50 trillion yen, about $550 billion, in new bonds — or more.

“There’s no mistaking the budget deficit stems from the past year’s global recession. Now is the time to be bold and issue more deficit bonds,” Mr. Fujii told reporters at the National Press Club in Tokyo. “Those who may call this pork-barrel spending — that’s a total lie.”

“Public sector finances are spinning out of control — fast,” said Carl Weinberg, chief economist at High Frequency Economics in a recent note to clients. “We believe a fiscal crisis is imminent.”

“Japan will keep on selling more bonds this year and next, but that won’t work in three to five years,” said Akito Fukunaga, a Tokyo-based fixed-income strategist at Credit Suisse. “If you ask me what Japan can resort to after that, my answer would be ‘not very much.’ ”

How Japan got into such a deep hole, and kept digging, is a tale of reckless spending.

The Democratic Party, which swept to victory in August, promises to rein in public works spending. But the party’s generous welfare agenda — like cash support to families with children and free high schools — could ultimately enlarge budget deficits.

“It’s dangerous for the Democrats to push on with all of their policies when tax revenues are so low,” said Chotaro Morita, head of fixed-income strategy at Barclays Capital Japan. “From a global perspective, Japan’s debt ratio is way off the charts,” he said.

In the long run, even Japan’s sizable assets could fall and eventually turn negative. Japan’s rapidly aging population means retirees are starting to dip into their nest eggs — just as government spending increases to cover their rising medical bills and pension payments.

“The yen is set to enter a long decline” in both stature and value as investors lose confidence in Japan, said Hideo Kumano, chief economist at the Dai-Ichi Life Research Institute in Tokyo.

Considering the state of Japan’s finances and economy, Mr. Kumano said, the yen’s recent strength against the dollar “isn’t an affirmation of Japan — it’s the yen’s last hurrah.”

UK Debt Also Soars Out Of Control

Inquiring minds are also interested in a UK Government Debt & Deficit Snapshot.

In the financial year 2008/09 the UK recorded a general government deficit of £101.3 billion, which was equivalent to 7.1 per cent of gross domestic product (GDP).

Bear in mind those numbers are for 2008/2009. Think they get any better? I don’t.

Now let’s consider something that has no budget deficit.

Gold Weekly

click on chart for sharper image

See any fiat currencies above that you like? Assuming you don’t, I don’t either. Moreover, I think the Yen is the worst of the lot on a relative basis. I also think the Yen is likely to have a serious currency crisis before the US.

Time will tell.

In the meantime, if you are looking for an explanation for gold’s strength that goes beyond the tired one-sided dollar bashing analysis routinely offered most everywhere you look, now you have it.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

(CFD.net.au – Contract for Difference, Share, Forex, ETFs, Commodities Traders) –

October 7, 2009

The decision was basically certain after ECB governing council member Gertrude Tumpel-Gugerell made a rare comment on monetary policy just before the meeting, one of two held yearly outside Frankfurt.

Tumpel-Gugerell told a conference in Austria Monday that the ECB’s curre …

Source: European Central Bank interest rates to stay anchored at Venice meeting

(CFD.net.au – Contract for Difference, Share, Forex, ETFs, Commodities Traders) –

Kathy Lien

Director of Currency Research, GFT

pips

%

AUD/USD

+115

GBP/JPY

-140

-0.98

USD/CAD

-103

-0.97

EXPECTATIONS FOR UPCOMING FED MEETINGS

CURRENT US INTEREST RATE: 0.25%

Chance of More Easing Has Increased

…

Kathy Lien

Director of Currency Research, GFT

• 
  
  
  
  
  
  
  
  
  
  
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EXPECTATIONS FOR UPCOMING FED MEETINGS

CURRENT US INTEREST RATE: 0.25%					Chance of More Easing Has Increased
	11/4 Meeting	12/16 Meeting
NO CHANGE	41.8%	47.0%
Cut to 0.00%	49.1%	44.5%
Increase to 0.50%	9.1%	8.5%
Increase to 0.75%	0.0%	0.0%

WHAT ARE THE IMPLICATIONS OF A Weak Dollar

The weakness of the U.S. dollar was one of the biggest stories in the financial markets today which is quite interesting considering the fact that the dollar failed to hit a new yearly low against the 3 most actively traded currencies – the Euro, British pound and J.P.nese Yen. Instead, the dollar dropped to significant level against the Australian, New Zealand and Canadian dollars. Yet investors around the world are paying attention because the weakness of the dollar drove


gold





prices to a record high. It is also not a coincidence that equities are trading higher on a day that the dollar is weakening because a weaker Currency is positive for the U.S. economy in many different ways.

Implications of a Weak Dollar

5 Reasons Why the Dollar Could Fall

Last week, we talked about the

5 Reasons Why the Dollar Could Fall

and here is a quick update on our points:

1. Don’t Expect a Fed Exit Anytime Soon

– The decision by the Reserve Bank of Australia to hike interest rates last night highlights the sharp divergence between the growth and monetary policy of countries like Australia with that of the Federal Reserve. Recent comments from the Fed suggest that they intend to keep Quantitative Easing in place for as long as they can. Over the past few decades, the Fed has never raise interest rates before the unemployment rate has peaked. With the recent uptick in unemployment, there is a good chance that the Federal Reserve could be one of the slowest central banks to tighten monetary policy and the slower they are, the fewer reasons for investors to own dollars.

2. Reserve Diversification

– Although not directly related to reserve Diversification, speculation that the Gulf States, China, Russia and Brazil are holding secret meetings to establish non-dollar denominated


oil





contracts contributed to the weakness of the dollar. Qatar and Saudi Arabia denied the speculation but this should remind Traders that many non Anglo-Saxon nations have a long standing desire to reduce their dependence on the dollar.

3. Strong Q3 Earnings

– To get a sense of how currencies could impact Earnings, just listen to the complaints coming from J.P.n. Toyota warned that for each one yen appreciation against the dollar, operating profit is cut by 35 billion yen or $390 million. For Canon, each one yen appreciation hurts their bottom-line by more than 4 billion yen or $45 million. No U.S. corporation will be that specific, but from these statistics, we can gage the positive impact that a Weak Dollar may have for U.S. exporters. Alcoa reports on Thursday so watch for more discussion about currencies and their impact on Earnings

4. Twin Deficits

– The U.S. trade deficit is due for release on Friday. The twin deficits have long been a drag on the dollar.

5. Price Patterns

– So far, price Patterns are holding. At the beginning of September we talked about how the price action of the


EUR/USD





and


USD/JPY





this month could set the tone for the rest of the year. At that time, we

showed two tables illustrating

how in 7 out of the last 10 years, the


EUR/USD





moved in the same direction between October and December as it did in September. For


USD/JPY,





the odds were even higher with the Currency seeing follow through 8 out of the past 10 years. Therefore based upon past price Patterns, we have more reasons to believe that the dollar will fall against the Euro and J.P.nese Yen over the next 3 months.

There are no major U.S. economic reports until Friday.

EUR/USD:





ECB RISK

For the third trading day in a row, the Euro appreciated against the U.S. dollar. There was no economic data from the Eurozone which means that the strength of the currency stemmed entirely from dollar weakness. As the greenback continues to lose value, Traders will start to wonder about what could turn the dollar around. Last week, the dollar appreciated significantly on the heels of currency related comments from European officials. This is why the European Central Bank meeting on Thursday is such a major event risk. ECB President Trichet will undoubtedly be asked about his take on the dollar or euro. If he simply reiterates his previous support for a strong dollar or expresses concern about excess volatility in foreign exchange it may be enough to turn the


EUR/USD





around. The final release for Q2 GDP and German factory orders are due for release tomorrow. There is a good chance that orders may have suffered from the expiration of the cash for clunkers program. Meanwhile the Swiss Franc traded higher against the euro and U.S. dollar despite news that prices declined for the seventh month in a row. Labor market numbers are due for release tomorrow and like the rest of the world, unemployment is expected to grow in Switzerland.

GBP/USD:





HIT BY SHARP DECLINE IN INDUSTRIAL PRODUCTION

Of all the major currencies, the British pound was the only one that failed to benefit from dollar weakness. Reason being that U.K. economic data has disappointed once again. On Monday, the market was elated by the improvement in service sector activity, but the manufacturing sector continues to suffer. Industrial production dropped 2.5 percent in August, driving annualized IP down 11.2 percent. Manufacturing production also fell 1.9 percent, to the lowest level in nearly 17 years. Although the sharp contraction in activity is partially due to the expiration of the car scrappage program, the report was still very bad. Numbers such as these validate the dovishness of the Bank of England and explain the currency’s underperformance. However there are pockets of strength, most notably in the housing market as price growth doubles in the month of September. Unfortunately this will not prevent the U.K. economy from standing still according to the National Institute of Economic and Social research who calculated that GDP remained unchanged from July to September. Consumer confidence is due for release this evening along with shop prices.

USD/CAD:





HITS 1 YEAR HIGH

The commodity currencies stole the limelight today with the Canadian, Australian and New Zealand dollars all hitting 12 month highs. The loonie benefited from solid economic data while the Aussie and Kiwi propelled higher following the Reserve Bank of Australia’s shocking decision to raise interest rates by 25bp. The RBA has set the bar and it is now up to other central banks to follow. According to the statement, this will not be a one off hike. Instead, the central bank intends to gradually lift interest rates from emergency levels. Their decision to raise rates now rather than later may be a bit strategic since they could have a tough time justifying a rate hike after the third quarter consumer price report. Australia’s decision is also a vote of confidence for the global recovery. The RBA’s decision could help lift the Aussie to 90 cents and higher. Meanwhile the Canadian dollar rose to a 1 year high following strong economic reports. Building permits rose by 7.2 percent in August while manufacturing conditions accelerated by the strongest level since July 2008. The IVEY PMI index which measures activity in the manufacturing sector rose from 55.7 to 61.7 in September, reducing some of the Bank of Canada’s fear that the strength of the Canadian dollar is crimping the country’s recovery. Every single one of the subcomponents of the IVEY PMI report exhibited strength with employment expanding for the first time since August 2008. This suggests that job growth continued in the month of September which will be important ahead of Friday’s Canadian employment report. The next level of support in the


USD/CAD





is not until 1.05. Aside from some secondary housing market reports from Australia, no major economic data are expected from the 3 commodity producing countries.

USD/JPY





BREAKS WITH EQUITIES

The


USD/JPY





currency pair fell victim to broad dollar strength despite the sharp rise in U.S. equities. The only piece of economic data released from Japan last night was loans and discounts which increased by 1.8 percent in August, compared to 2.4 percent the previous month. The market continues to shrug off comments from Finance Minister Fujii who warned that the Japanese government will take action if the movements in the yen become extremely abnormal. With the Yen strengthening and Japanese corporations screaming, government officials said it is too early for the central bank to withdraw stimulus. Deputy Prime Minister Naoto Kan even went so far as to suggest that the government may need to compile an additional program to support the labor market.


USD/JPY&





#8217;s break with equities indicates that the dollar is driving the currency market and not risk appetite. The economic calendar heats up this evening with leading indicators, the trade and current Account balance and Eco Watchers survey due for release.

EUR/USD:





Currency in Play for Next 24 Hours

The


EUR/USD





will be the currency in Play for the next 24 hours. The final release of Q2 Euro-zone Gross Domestic Product is due at 9:00GMT or 4:00AM ET followed by German factory orders at 10:00 GMT or 6:00AM ET.
The


EUR/USD





has recovered significantly off of last week’s lows and is at the cusp of entering the Buy Zone, which we establish using Bollinger Bands. A break of today’s high of 1.4762 would open the door for a move towards the 1 year high of 1.4845. However if the currency pair fails to enter the Buy Zone, it could retest support at 1.4580, which is the first standard deviation Bollinger Band.

Comments (7)

Darrell

October 06, 2009 at 05:47 PM ET

Hi Kathy, Well put and may I add that by the end of this year 300 million Americans will come into Play concerning the value of the Dollar. The Fed as we know it will be out and I mean literally out, without a job. Mid TERm elections will also wake up Washington a little more. For the first time in many many years the average American is talking about the colapse of their currency. This is huge because millions of Americans that have any money left will move it to gold and foreign currencies. Already some US senators are trying to pass a law to prohibit ownership of foreign currencies. I believe the Dollar is in bigger trouble than most people know. Time will tell but the US debt in my opinion is way beyond repair.Sorry for too much babbling. Maybe its time for the AMERO. Bye for now and good luck trading Darrell

raulsm

October 06, 2009 at 07:09 PM ET

Excellent Kathy. Considering that the national U.S debt is $12T, the unfunded liabilites (pensions et al) are $104T, and current projected deficits are $9T in the next few years, a weak dollar will do wonders for the U.S. as they will pay those debts with wooden nickels. Pity those on fixed incomes.

I’d like to point out that gold has risen in USD and Euros, but has gone down this year in many other currencies, please see live chart at http://nexalogic.com/gold.html. Gold has gone up +18% in USD, but has gone down 17% vs Real (YTD). Gold going up is all relative. It is the same thing with the “markets going up”.

aloen

October 06, 2009 at 09:04 PM ET

Hi Kathy, could you explain why weak dollar will make US deficit smaller?

Thanks

fuji

October 07, 2009 at 12:20 AM ET

just think of a simple math, you made out 100USD loan from me a year ago, let say this year the USD value has gone down 20%. think about it ! how much you have to pay me back now ?

hsbc

October 07, 2009 at 02:52 AM ET

DAILY DOSAGE OF BAD NEWS FROM UK. SIGH

Lang

October 07, 2009 at 11:36 PM ET

What if earnings report in Q3 was exceptionally good? How is that going to affect USD?

Would a good Q3 earnings and a stablizing job market make the Fed consider rate hikes “sooner than later”?

klien

October 08, 2009 at 09:52 AM ET

Since currencies are trading off equities currently, strong earnings should be positive for stocks and in turn negative for the dollra

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Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank’s interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and Futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated

Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves

, and the co-author of

Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game

with Boris Schlossberg.

To Buy Kathy’s newly updated

Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves

,

click here

.

Source: What Are The Implications Of A Weak Dollar

(CFD.net.au – Contract for Difference, Share, Forex, ETFs, Commodities Traders) –

Kathy Lien

Director of Currency Research, GFT

Unlike the Reserve Bank of Australia, the European Central Bank and the Bank of England are not expected to raise interest rates. However that does not mean that no significant comments will come out of the meeting.

ECB: Will Trichet Re …

Kathy Lien

Director of Currency Research, gft

Unlike the Reserve Bank of Australia, the European Central Bank and the Bank of England are not expected to raise interest rates. However that does not mean that no significant comments will come out of the meeting.

ECB: Will Trichet Reiterate His Support for the Dollar?

monetary policy will most likely remain unchanged on Thursday, but there is a good chance that Central Bank President Trichet could reiterate his Support for the dollar and the adverse impact of excess foreign exchange moves. Although this would be nothing new, it could be enough to tip the


EUR/USD





over. Based upon recent economic reports from the Eurozone, the recovery remains “bumpy.” The expiration of the car scrapping program in Germany has driven retail sales sharply lower while his morning’s Eurozone GDP report revealed that growth in the second quarter fell more than initially anticipated. Weakness in other parts of the region has offset growth in Germany and France, triggering a 0.2 percent drop in GDP. Aside from comments on the Currency, the market will also be looking at what Trichet says about the economy and the results of their second one year refinancing operation which was met with lackluster demand. The question of adding a spread to the one year tender is once again an issue. If the ECB adds a spread to the December operation, it would be perceived as a hawkish move. Given the recent trend of economic data and the appreciation in the


EUR/USD,





Trichet may postpone this decision until November. In terms of exit strategies, ECB officials have said repeatedly that now is not the time for an exit and we expect Trichet to reiterate this stance.

BoE: Playing Second Fiddle to the BoE

Of all the major central banks, the Bank of England is the most dovish, which explains the recent underperformance of the BRitish pound. At the last monetary policy meeting, the BoE left their asset purchase program unchanged but announced that it would take another 2 months to complete which suggests that they haven’t ruled out further stimulus. Changing the interest paid on bank reserve deposits was not discussed at the previous meeting and could therefore be discussed tomorrow. There has also been a lot of confusion about the central bank’s stance on the sterling so if the BoE addresses this issue, it could trigger volatility in the pound. Otherwise, we do not expect anything significant from the BoE tomorrow – instead our focus will be on the ecb.

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To buy Kathy’s newly updated

Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves

,

click here

.

Source: ECB and BoE Preview: Any Risk of Fireworks?

(CFD.net.au – Contract for Difference, Share, Forex, ETFs, Commodities Traders) –

Kathy Lien

Director of Currency Research, GFT

pips

%

GBP/CHF

+143

+0.88

CHF/JPY

-69

-0.80

USD/CHF

+67

+0.65

EXPECTATIONS FOR UPCOMING FED MEETINGS

CURRENT US INTEREST RATE: 0.25%

Chance of More Easing Has Increas …

Kathy Lien

Director of Currency Research, GFT

• 
  
  
  
  
  
  
  
  
  
  
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EXPECTATIONS FOR UPCOMING FED MEETINGS

CURRENT US INTEREST RATE: 0.25%					Chance of More Easing Has Increased
	11/4 Meeting	12/16 Meeting
NO CHANGE	41.8%	47.0%
CUT TO 0BP	49.1%	44.5%
INCREASE TO 50BP	9.1%	8.5%
INCREASE TO 75BP	0.0%	0.0%

U.S. DOLLAR: MORE PROTECTIONISM IS BAD

It is not surprising to see the DOLlar recover after selling off significantly in the beginning of the week. In every downtrend there will be relief rallies which is what we have witnessed today. The DOLlar traded higher against the Euro, Australian, New Zealand and Canadian dollars, but not before each of the 3 commodity producing currencies hit fresh year to DATe highs. The U.S. economic calendar was once again devoid of any major economic releases, giving investors the opportunity to let their imaginations run wild. Although there are many reasons why the dollar should continue to weaken, the primary reason is the improvement in risk appetite. So if risk aversion returns and equities give back their recent gains, the relief rally in the dollar could become a full blown turn. Concerns about losses in the commercial real estate sector and the unrealistic expectations of a V shaped recovery have made investors a bit nervous. However with no major U.S. economic reports due for release this week and 2 central banks making monetary policy announcements tomorrow, we still believe that interest rate differentials will drive the Currency market.

More Protectionism

Although there are no major U.S. economic releases on the calendar tomorrow, there are 2 U.S reports worth watching – jobless claims and ICSC Chain Store Sales. After the acceleration of job losses reported last week, Traders will be looking for clues to whether the trend of improvement in the labor market has ended. If jobless claims increase more than the previous week, investors could grow concerned about another month of massive job losses. In addition, there have been a lot of reports that spending this holiday season will be weak and because of that, retailers are just looking to breakeven. However, based upon the SpendingPulse Index, a service by MasterCard Advisors, retail sales rebounded in September. Costco and Family Dollar Stores also posted better than expected quarterly results which give hope to Thursday’s report which will include back to school spending. Meanwhile consumer credit fell for the seventh month in a row due to mounting job losses and tight credit. If not for the cash for clunkers program, the DATa would have been even weaker.

EUR: COULD TRICHET TALK CURRENCIES?

The Euro traded lower against the U.S. dollar on the fear that European Central Bank President Trichet could reiterate his support for the U.S. dollar. There is no question that reporters will jump at the opportunity to ask Trichet about his take on the recent weakness of the dollar and there is no reason why he would change his stance. Although this would be nothing new, it could be enough to tip the


EUR/USD





over. Based upon recent economic reports from the Eurozone, the recovery remains “bumpy.” The expiration of the car scrapping program in Germany has driven retail sales sharply lower while his morning’s Eurozone GDP report revealed that growth in the second quarter fell more than initially anticipated. Weakness in other parts of the region has offset growth in Germany and France, triggering a 0.2 percent drop in GDP. Aside from comments on the Currency, the market will also be looking at what Trichet says about the economy and the results of their second one year refinancing operation which was met with lackluster demand. The question of adding a spread to the one year tender is once again an issue. If the ECB adds a spread to the December operation, it would be perceived as a hawkish move. Given the recent trend of economic DATa and the appreciation in the


EUR/USD,





Trichet may postpone this decision until November. In TERms of exit strategies, ECB officials have said repeatedly that now is not the time for an exit and we expect Trichet to reiterate this stance. Aside from the monetary policy announcement, German industrial production is also due for release. The increase in factory orders suggests that there is a good chance that production rose as well.

GBP/USD:





CONSOLIDATION AHEAD OF BoE

The British pound continued to consolidate ahead of tomorrow’s Bank of England meeting while


EUR/GBP





reversed much of yesterday’s strong rally. The pair will be of particular importance ahead of the BoE and ECB rate decisions. The only economic indicator reported today from the U.K. was Nationwide Consumer Confidence which continues its string of excellent performance. The report showed that confidence hit the highest level in 18 months, while economic expectations reached nearly a four year high. Nationwide attributed the improvement to “continued positive news about the housing market and the strong rally seen in equities.” Of course, the BoE rate decision will be the focus of tomorrow’s calendar. After the surprise decision to expand the asset purchase program in August many Traders are approaching the decision with caution. However, even though the bank is still the most dovish in town, there is not much that could be expected. The main points to look out for will be any mention of the pound or any discussion about the possibility of lowering the banks deposit rate.

AUD: EMPLOYMENT NUMBERS ON TAP

The Australian, New Zealand and Canadian dollars raced to fresh year to date highs before giving up their gains to end the day lower against the U.S. dollar. Australian economic data continues to outperform, adding validity to the Reserve Bank of Australia’s decision to hike interest rates earlier this week. Construction sector PMI jumped from 42.4 to 50.8, putting the Index into expansionary TERritory for the first time since February 2008. Home loans continued to fall while investment lending surged. The housing market in Australia has been fueled by not only Australian but also Chinese demand. This evening, employment numbers are due for release and we believe that the data will help to reignite the rally in the Aussie. With the employment component of service, manufacturing and construction sector PMI all rising in September, there is a good chance that Australia experienced positive job growth last month. Meanwhile the Canadian dollar came under pressure as


oil





prices gave back their earlier gains. Housing starts are also due for release tomorrow and the rise in building permits suggests a recovery in Canada’s real estate market which could help to lift the loonie.

USD/JPY:





FUJII IS AT IT AGAIN

The U.S. dollar fell to a 9 month low intraday before rebounding to end virtually unchanged against the J.P.nese Yen. Despite the dollar’s recovery against other major currencies, it remains weak against the Yen which suggests that the market is still bearish dollars. As the currency pair continues to fall, the market will increase its focus on comments by J.P.nese officials. Finance Minister Hirohisa Fujii’s is at it again – the incoming administration’s rules about foreign exchange intervention seem to change day by day. Mr. Fujii explained that while he does not believe governments should intervene, there are certain exceptions to the rule. In the cases where currency fluctuations are “outrageously reckless” authorities will need to take appropriate measures. However, he does not regard the yen’s strength as being “extremely abnormal.” In an attempt to keep the dollar from falling too far, Fujii mentioned that he does not expect to reduce the level of dollars in J.P.n’s reserves. These latest comments are on the back of signs of distress coming from Sony Electronics. The company predicts that the yen will continue to strengthen, giving them “no moment to breathe”. Economic data released today included the Coincident Index, which jumped to its highest in eleven months, and the Leading Index which improved to 83.3. On the way for tomorrow will be the Current Account and Trade Balance along with the Eco Watchers Survey.

EUR/GBP:





Currency in Play for Next 24 Hours

EUR/GBP





will be the currency pair in Play for the next 24 hours. The Bank of England is set to announce its rate decision at 7:00 am ET or 11:00 GMT. The ECB will follow with its decision at 7:45 am ET or 11:45 GMT. There will also be German Industrial Production at 6:00 am ET or 10:00 GMT.

EUR/GBP





struggles to regain recent highs and barely is holding within the Bollinger band buy zone. Potential support stands at 0.9077, which was not only the September 30th low but also the September 21st high. Resistance is extremely strong at 0.9300, the high from September 28th. Any sign that the direction of the ECB and BoE are diverging more than expected could send the currency pair that way.

Comments (7)

FXDragon

October 07, 2009 at 05:56 PM ET

What is chicken feet? What do americans do with it? Dont they grow thieir own chicken? I like wings and legs

Clover

October 07, 2009 at 06:07 PM ET

It is the feet of the Chicken…and because you like wings and legs, but not the feet, the US sells them to China where it is as usual as hot-Dog in America.

hsbc

October 07, 2009 at 07:46 PM ET

i live in china and no one has really heard of US chickens. china has a huge poultry sector and its hard to imagine why anyone would want an imported chicken

usman

October 08, 2009 at 12:50 AM ET

whats happening with the Gold? tell me the reasons for current trents ? why is this happening so quickly?

FXDragon

October 08, 2009 at 03:24 AM ET

Gold is roofing because investors wanna protect their dollar investments. Gold and dollar are rivals, Euro and gold are brothers. They also hedge against hyperinflation which might come because of low fed rates and huge trade deficit.

klien

October 08, 2009 at 09:52 AM ET

one answer – Dollar Weakness

Eddie09

October 08, 2009 at 08:22 PM ET

Well, I wish the Chinese government officials could use the decisions on U.S. government debt as their bargaining chip for certain important issues. Unfortunately they are not able to. Something behind the scene do not allow. Even some US financial commentators have mentioned, the Chinese officials do not necessarily want to continue to buy the US debt (after they have already owned unprecedented huge amount of it), but they have to. Well, it’s up to the readers about how to understand the comments. At least you know they have no choice but continue to deliver hundred of billions$ to the central bank each month…

You can see a lot of peculiar things happening these days (including the trade issues you pointed out) while the Chinese officials simply have no real action or reaction. People will learn why in the future.

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Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank’s interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and Futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated

Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves

, and the co-author of

Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game

with Boris Schlossberg.

To buy Kathy’s newly updated

Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves

,

click here

.

Source: U.S. Dollar: More Protectionism is Bad

(CFD.net.au – Contract for Difference, Share, Forex, ETFs, Commodities Traders) –

Kathy Lien

Director of Currency Research, GFT

Trichet’s Comments on the Euro

In general, ECB President Trichet’s tone was relatively upbeat which should be positive for the euro because it suggests that he may be much closer to implementing an exit strategy than the Federal …

Kathy Lien

Director of Currency Research, GFT

Trichet’s Comments on the Euro

In general, ECB President Trichet’s tone was relatively upbeat which should be positive for the Euro because it suggests that he may be much closer to implementing an exit strategy than the Federal Reserve. However he also repeated his previous comments on the Euro and U.S. dollar which was enough to turn the Currency pair around. More specifically, Trichet reiterated that excess volatility and disorderly movements in exchange rates are adverse for the global economy and with that in mind, the U.S.’ strong dollar policy is extremely important in present circumstances. If the ECB is growing more uncomfortable with the weakness of the U.S. dollar and the strength of the EURo, they are certainly not showing it. In our opinion, the fact that Trichet failed to say anything new about the EURo is a good thing because it suggests that they do not feel an urgency to step up their degree of verbal intervention. In the words of Trichet “If we have anything to say on intervention, we will.” As for the EURo overtaking the dollar as a reserve Currency, Trichet said the ECB does not actively promote the use of the euro on a global level. These comments are clearly due to their increased optimism about the outlook for the Eurozone economy.

Trichet’s Comments on the Economy and Inflation

According to ECB President Trichet, there are signs of stabilization in the Eurozone and global economy. Everyone is finally coming out of free fall mode which is a vote of confidence for the recovery story. Going forward, Trichet expects the economy to benefit from a recoveyr in exports and stimulus measures. The unemployment rate is still expected to rise but the labor market could deterorate less than anticipated. The primary risks are


oil





prices and protectionism. A bumpy road is expected ahead for the economy and therefore the recovery will be gradual. As for Inflation, price pressures are expected to turn positive in the coming months, but it will remain subdued. With Inflation expectations firmly anchored, the ECB is not losing sleep over potential price pressures. However they are a tad worried by the weakness in loan growth. The second of the three 1 year tenders was met with lackluster demand but Trichet believes that this is because banks had cash already.




Unlike the Fed, speculation that the ECB could add a spread to the one year tender in December puts the central bank closer to tightening monetary policy which is what Traders should remember when they are considering the long term outlook for the EUR/USD.

<!– Loading —>
<!—/ End Loading —>

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank’s interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and Futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated

Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves

, and the co-author of

Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game

with Boris Schlossberg.

To buy Kathy’s newly updated

Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves

,

click here

.

Source: ECB"s Comments Trigger Roller Coaster Moves in EUR/USD

(CFD.net.au – Contract for Difference, Share, Forex, ETFs, Commodities Traders) –

Kathy Lien

Director of Currency Research, GFT

pips

%

AUD/USD

+155

+1.75

AUD/JPY

+124

+1.56

EUR/AUD

-169

-1.02

EXPECTATIONS FOR UPCOMING FED MEETINGS

CURRENT US INTEREST RATE: 0.25%

Rates to Remain Unchanged Throu …

Kathy Lien

Director of Currency Research, GFT

• 
  
  
  
  
  
  
  
  
  
  
  pips
  
  
  
  
  %
  
  
  
• 
  
  
  AUD/USD
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  +155
  
  
  
  
  +1.75
  
  
  
• 
  
  
  AUD/JPY
  
  
  
  
  
  
  
  
  
  
  
  
  
  
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  EUR/AUD
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  -169
  
  
  
  
  -1.02
  
  
  

EXPECTATIONS FOR UPCOMING FED MEETINGS

CURRENT US INTEREST RATE: 0.25%					Rates to Remain Unchanged Throughout 2009
	11/4 Meeting	12/16 Meeting
NO CHANGE	39.9%	46.2%
Cut to 0.00%	51.2%	44.4%
Increase to 0.50%	8.9%	6.7%
Increase to 0.75%	0.0%	0.0%

U.S. DOLLAR: WHERE DOES FED FIT IN PART 2

The U.S. DOLlar traded lower against all of the major currencies with the sharpest losses seen against the Australian DOLlar, which surged on the heels of the strongest job growth in 2 years. Earlier this week, we penned an article titled “

Where Does the Fed Fit In

? ” and we truly believe that the recent price action in the Currency market reflects the answer to that question. Three central banks made Monetary Policy announcements this week with 3 very different outcomes. The Reserve Bank of Australia hiked interest rates, the European Central Bank grew a bit more optimistic while the Bank of England left the door open for further easing. There is a good chance that all 3 of these central banks could make changes to their Monetary Policy before the end of the year. The Federal Reserve on the HANd will most likely leave their Quantitative Easing program Unchanged. They have not been in a rush to remove their unconventional measures, especially following last week’s disappointing non-farm payrolls Report. This dynamic reinforces our belief that the dollar could continue to fall.

Where Does the Fed Fit In Part 2

The answer to the question of “Where Does the Fed Fit In” will also be the primary driver of the Currency market over the next few months. If other central banks start to follow in the footsteps of the rba (like New Zealand), we could see more currencies hit new highs against the U.S. dollar. There is a good chance that the rba could also raise interest rates again before the end of the year. Even though the ECB is not expected to hike their main interest rate, they could add a spread to the December one year tender which would still be perceived as a hawkish move. The BoE is more dovish than the Fed but the pound could simply benefit from broad based dollar weakness. The following chart which is created based upon the price of options on interest rate Futures, shows how close the market believes each of the major central banks are to raising interest rates and could signal the dollar’s future performance against other currencies.

Earnings season has also begun and we expect a lot of positive surprises. Alcoa, PepsiCo and Marriott all Reported stronger results. If equities continue to rally, the


EUR/USD





should as well. The following chart illustrates the correlation between the


EUR/USD





and the S&P 500.

Source: Bloomberg

Economic Data Preview and Review

Aside from the better than expected Earnings Reports, the risk appetite in the market has also improved because of stronger economic data. Jobless and continuing claims have fallen while chain store sales increased 0.1 percent. In other words, the latest reports indicate that the labor market is improving and consumer spending is holding steady. The market currently expects a very sharp 2.0 percent drop in retail sales but many of the leading indicators for consumer spending including the ICSC and SpendingPulse index along with results from individual retailers suggests otherwise. The trade balance is due for release tomorrow and the weak dollar combined with the rise in the export component of manufacturing ISM indicates a recovery in trade.

EUR/USD:





TAKEAWAY POINTS FROM ECB

Even though the Euro ended the U.S. session higher against the dollar, there was quite a bit of intraday volatility on the heels of ECB President Trichet’s post Monetary Policy meeting press conference. In general, Trichet’s tone was relatively upbeat which suggests that the central bank may be much closer to implementing an exit strategy than the Federal Reserve. There are signs of stabilization in the Eurozone economy and the recovery in exports should fuel growth going forward. As we expected, the second question asked by reporters was the ECB’s stance on the currency. Trichet repeated his previous comments that excess volatility and disorderly movements in exchange rates are adverse for the global economy and with that in mind, the U.S.’ strong dollar policy is extremely important in present circumstances. Although no new comments were made, it was still enough to turn the


EUR/USD





around. Also, Traders were disappointed by the fact that the ECB failed to add a spread to the one year tender in December, but with another meeting between now and then, the central bank can afford to wait. There is no urgency within the ECB to step up their degree of verbal intervention or to implement an exit strategy. In the words of Trichet “If we have anything to say on intervention, we will.” He also said that monetary stimulus is providing strong support for the economy and unconventional measures will be unwound in a timely fashion when the economy improves. Overall, Trichet’s comments should be more positive than negative for the Euro. Unlike the Fed, speculation that the ECB could add a spread to the one year tender in December puts the central bank closer to tightening monetary policy which is what Traders should remember when they are considering the outlook for the EUR/USD. Meanwhile German industrial production rose slightly less than expected in August. The German trade and current Account balance along with the final consumer price report for the month of September are due for release tomorrow.

GBP/USD:





BOE ON HOLD TO NOVEMBER

The British pound rallied against the U.S. dollar and Euro after the Bank of England left the size of their asset purchase program and interest rates Unchanged. The monetary policy statement was short and sweet with the central bank saying that they voted to continue with their current GBP 175 billion program of asset purchases which they expect to take another month to complete. “The scale of the program will be kept under review.” The BoE has not closed the door on further asset purchases but the market will have to wait for the minutes to see how close they are to increasing stimulus. Next month’s monetary policy announcement will be a particularly important because it comes a week before the Quarterly Inflation Report. As they prepare the report, the central bank will be thinking about the impact that the weakness in the pound and higher commodity prices will have on the economy. If economic data continues to deteriorate, the BoE may be forced to cut interest rates or ask the Chancellor for more funds. Both former Deputy Governor John Gieve and former Monetary Policy Committee member Blanchflower believe that the BoE needs to do more. The U.K. economy is clearly not out of woods and even though the BoE left monetary policy unchanged today, they have not necessarily ended their easing cycle. The central bank is still one of the most dovish on the street and for the time being, they are on hold until November. Producer prices and trade data are due for release tomorrow. On a trade weighted basis, the British pound has fallen more than 7 percent since the beginning of August which could help reduce the trade deficit. However the contribution is likely to be small since manufacturing PMI contracted.

USD/CAD:





EMPLOYMENT NUMBERS ON TAP

There are a lot of economic reports due for release tomorrow but none of them are more important than Canada’s employment report. In the month of August, Canada experienced its first job gain in four months. The market expects job losses to return in September but given the sharp rise in the employment component of IVEY PMI, we believe that not only could job losses be minimal but there is a good chance that Canada experienced positive job growth for the second month in a row. A strong labor market report should add to the upside momentum in the Canadian dollar and send it a fresh 12 month high against the greenback. Although housing starts fell in September, the August data was revised sharply higher. Meanwhile the Australian and New Zealand dollars raced to fresh 14 month highs on the heels of the incredibly hot Australian employment report. A total of 40.6k Australians found new jobs last month, dropping the unemployment rate for the first time in 5 months to 5.7 from 5.8 percent. Given the rise in the employment components of the service, manufacturing and construction sector PMI reports, we were a bit surprised that economists actually expected job. In our daily report yesterday, we said there is a good chance that Australia experienced job growth but no one anticipated the strongest job growth since November 2007. The best part of the report is that most of growth occurred in full time work. The improvement in the labor market validates the Reserve Bank’s decision to hike interest rates earlier this week and confirms our belief that interest rates could be lifted again before the end of the year. The construction sector has been booming partially due to government stimulus and partially due to the recovery in the housing market. We have been looking for the


AUD/USD





to break 90 cents for a very long time and now expect the currency pair to rise as high as 93 cents over the next few months.

USD/JPY:





3 MONTH LIBOR SPREAD SIGNALS MORE LOSSES

USD/JPY





is having a very tough time participating in the rally experienced by the other yen crosses. This of course is a reflection of the overall weakness in the U.S. dollar. The 3 month LIBOR spread between the U.S. and J.P.n continues to grow in the favor of the Yen which signals further losses in the currency pair. Unless the


USD/JPY





manages to rise back above 90, the path of least resistance is still lower with support in the currency pair at the one year low of 87.14. If the yen is only rising against the U.S. dollar, J.P.nese officials may not feel as compelled to intervene in the currency. Given the flip flopping comments by Finance Minister Fujii, we do not believe that the new Finance Minister is a strong advocate of intervention. He is certainly under pressure from J.P.nese corporations, but a break of 85 may be needed before they will step in. Meanwhile, economic data supports the recovery story in Japan. The current surplus increased more than expected in the month of August along with the Eco Watchers Survey. Bankruptcies also plunged by 18 percent while machine tool orders fell at a slower pace. The trade balance narrowed but not by as much as the market had anticipated. As long as the dollar remains the driver of the currency market, the performance of


USD/JPY





could continue to diverge from the other yen crosses.

USD/CAD:





Currency in Play for Next 24 Hours

USD/CAD





will be the currency pair in Play for the next 24 hours. Canada will be releasing their employment report at 7:00am ET or 11:00 GMT and the U.S. will release its trade balance report at 8:30am ET or 12:30 GMT.


USD/CAD





is currently trading in the Sell Zone, which we establish using Bollinger Bands. The 1.0310 a low reached in September of last is the closest level of support. Nonetheless there may be some buying at 1.05. However below that level, there is no major support until parity. However if


USD/CAD





gains strength and comes out of the Sell zone by breaking above 1.07, the rally could extend as far as 1.0840.

Comments (1)

Biowolf

October 08, 2009 at 10:24 PM ET

SPAin intrducing emrgency tax, Latvia reneging IMF loans. Euro bullish ?

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Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank’s interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and Futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated

Day Trading the currency market: Technical and Fundamental Strategies to Profit from Market Moves

, and the co-author of

Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game

with Boris Schlossberg.

To buy Kathy’s newly updated

Day Trading and Swing Trading the currency market: Technical and Fundamental Strategies to Profit from Market Moves

,

click here

.

Source: U.S. Dollar: Where Does FED Fit In Part 2

by William Ickes FRANKFURT (AFP) –

The eurozone’s key interest rate is locked in at a record low of 1.0 percent until the 16-nation economy pulls firmly out of recession, which could take longer than expected, analysts say.

European Central Bank policymakers meet Thursday in Venice for one of two meetings held annually away from the bank’s headquarters in Frankfurt.

They will leave the main rate steady, and “with the risk of deflation lingering, we still see official interest rates on hold for much longer than markets anticipate,” Capital Economics economist Jennifer McKeown said.

Prices across the eurozone fell in September for the fourth month running, by 0.3 percent according to an estimate by the EU Eurostat data agency.

Economists nonetheless do not expect the bloc to be gripped by deflation, a long run of falling prices that can set in motion a vicious spiral of…

See the full post at Eurozone interest rate secured at 1.0 pct: analysts

The unemployment rate across the 16 countries that use the euro rises again as the effects of the recession continue to be felt…. From BBC News. Full story

This site may contain information about: survive a recession. The blog is also related to: recession trade.

THE COFFIN SHAPED RECOVERY

While often wrong, Bernanke is right about the recession. It’s almost over. But a depression is about to replace it.

There has been much discussion about this recovery, whether it will be a “U”, “V” or a “W” shaped recovery. The answer is none of the above. It is going to be “C -shaped” recovery, but not as in the letter “C” but as in coffin.

The Coffin-Shaped Recovery

It would be a miracle if trillions of dollars of debt could be wiped out with one stock market crash and be succeeded by a new bull market driven by another large offering of credit by the Fed.

But such a central bank-engineered miracle today is impossible. Capitalism’s natural cycles derive from central banker’s unnatural infusion of credit into previously free markets. The subsequent distortion causes market demand to expand (which everybody loves) only to be followed by the inevitable contraction—which everybody hates.

Usually, central banks wait until previous levels of excess credit have been absorbed in an economic downturn before embarking on a fresh round of credit creation. This time, however, it is different.

This time, the cumulative buildup of debt over previous cycles where contractions were cut short to minimize economic pain and attendant political consequences is now so large that any contraction is sufficient to bring down the extraordinary backlog of debt built up over previous cycles.

The current contraction is more than sufficient to do so as it is more severe than any downturn since the 1930s; and despite the frantic attempts of central banks to contain the cumulative forces unleashed by previous cycles of credit and debt, the enormous but fragile paper-based economy built by central bankers’ paper money is now collapsing.

To hopefully prevent the collapse from reaching its catastrophic end, central bankers have now intervened far earlier and with far more credit hoping to prevent the day of reckoning, a reckoning soon to be evidenced by an historic deflationary depression that will wipe out all accumulated unpayble debts, albeit at the cost of a functioning world economy.

Such is Ben Bernanke’s considerable task. Despite his outwardly positive demeanor, Bernanke is well aware that his desperate gamble hasn’t worked.

In these times, the last thing you want to be is Ben Bernanke’s sphincter.

(note: Martha declined to produce my relevant cartoon)

KEYNESIAN COPS, FRIEDMAN’S FOLLIES, AND THE FLAWED THEORY BEHIND THE RECOVERY

The current chairman of the US central bank is Ben Bernanke, a self-described student of the Great Depression; but, learning is limited by what is taught and regarding the Great Depression, Bernanke’s teacher unfortunately was Milton Friedman.

The reason why central bankers (and Ben Bernanke in particular) are flooding the global economy with money, i.e. borrowed, printed, or monetized out of thin air with such abandon (who would have thought bankers could act with abandon except, of course, when believing risk is non-existent and they’re betting someone else’s money), is because of Milton Friedman’s theory, to wit that economic contractions can be reversed by sufficient monetary expansion.

Laid bare, Freidman’s theory is another iteration of the Keynesian belief in the power of government intervention, albeit an intervention cloaked in Friedman’s more palatable—at least to those on the right—conservative garb.

Friedman argued that if the Fed had aggressively expanded the money supply in the 1930s, it would have then counteracted deflationary forces and prevented the Great Depression, an argument unfortunately as flawed as another of Friedman’s pet theories, i.e. thatfloating exchange rates would naturally over time bring global trade deficits into balance.

Note: When exchange rates were allowed to float in 1974 as encouraged by Friedman who also encouraged Nixon to abandon the gold standard in 1971, the US had a positive balance of trade. Thirty five years later, the US trade deficit is well over $800 billion and is growing over $20 billion each month (Hey, Milton, how much more time will it take to balance the trade deficit?).

Professor Antal Fekete warned several years ago that Friedman would someday be proved wrong and that we would collectively suffer the consequences; and, that just as during the Great Depression when banks hoarded the government’s cheap money instead of lending it, they would do so again when Friedman’s theory of monetary expansion was tried during another contraction.

Professor Fekete’s warnings have now come true. Today, US bank lending growth has entered negative territory at the same time cash reserves at US banks increased by 1,460 %.

Frank Shostak in Does A Liquidity Trap Pose A Threat, 9/23/09, on mises.org writes:

The latest data for lending in the eurozone the United Kingdom, and the United States display a visible weakening. In the eurozone, the yearly rate of growth of bank lending to the private sector fell to 0.6% this July from 9.3% in July last year. In the United Kingdom, the yearly rate of growth of lending to the private sector fell to 2.2% in July 2009 from 10.1% in July 2008. In the United States, the rate of growth of lending plunged to minus 3.8% in August 2009 from a positive figure of 8.6% in August 2008…At the end of July this year, [however], US banks were sitting on $729 billion of cash against $1.9 billion in July last year.

http://mises.org/story/3697 [bracketed words, mine]

Friedman’s theory is flawed and as suspect as the paper money Friedman and Keynes both promoted. Central banks can print all the money they want but that will not necessarily increase the money supply as central bankers are discovering.

Severe monetary contractions that cause deflationary depressions are so powerful they, like monetary black holes, can destroy money faster than central banks can create it.

The on-going monetary contraction is now clearly evident. Ambrose Evans-Pritchard, columnist for The Telegraph UK, points out the glaring truth that Bernanke and most of his paper-weight brethren would like to avoid:

The US money supply has experienced the sharpest contraction in modern history, heightening the risk of a Wall Street crunch and a severe economic slowdown in coming months… the M3 ‘broad money” aggregates fell by almost $50bn (£26.8bn) in July, the biggest one-month fall since modern records began in 1959.

“Monthly data for July show that the broad money growth has almost collapsed,” said Gabriel Stein, the group’s leading monetary economist.

On a three-month basis, the M3 growth rate has fallen from almost 19pc earlier this year to just 2.1pc (annualised) for the period from May to July. This is below the rate of inflation, implying a shrinkage in real terms.

The growth in bank loans has turned negative to a halt since March…. shifts in M3 are a lead indicator of asset prices moves, typically six months or so ahead. If so, the latest collapse points to a grim autumn for Wall Street and for the American property market. As a rule of thumb, the data gives a one-year advance signal on economic growth, and a two-year signal on future inflation.

http://www.telegraph.co.uk/finance/economics/2795017/Sharp-US-money-supply-contraction-points-to-Wall-Street-crunch-ahead.html

This is not your mother’s contraction. Instead, this is the mother of all contractions, a contraction far greater than even that which sent the world into the Great Depression in the 1930s.

This time, the amounts owed are exponentially greater than what was owed in the 1930s; and, the greater the debts, the farther the fall. Debt does not just disappear without consequences, nor can it be outrun, sic outgrown, as economists are desperately hoping, especially today when economies are contracting, not expanding.

Economic contractions cannot be reversed by expanding the money supply any more than wishful thinking by itself will change the world. Despite the best efforts of central bankers like Ben Bernanke, Friedman’s flawed theory cannot save the world from what is now about to happen—the mother of all depressions that may be capitalism’s last.

Keynes and Friedman, both brilliant, were both believers in paper money. Paper money has many powers, not the least of which is the power to mislead and delude.

WHO BENEFITS FROM THE FRAUD OF PAPER MONEY

The substitution of paper money for gold and silver has always been imposed by those who govern upon those governed; and, in the US it was done so illegally. The US Constitution explicitly defines the US dollar in silver, not paper money. The current regime of fiat money in the US is not only a monetary abomination, it is de jure unconstitutional.

The imposition of fiat money in the US was done without the consent of the governed. However, those who govern approved it. This is because the advantages of paper money accrue to those who rule; and it is in their interests, not society’s, that paper fiat money becomes the coin of the realm.

The disadvantages of paper money are borne by society-at-large, i.e. entrepreneurs, workers, businesses, retirees, savers, etc. who pay retail for the credit dispensed wholesale to those better connected, e.g. are you able to leverage your investments 50:1 as can JP Morgan Chase, Goldman Sachs, etc.; and, can you to carry your underwater investments at full book value and borrow against them as it does Wall Street? And were you bailed out last year as were the banks?

I have always been amazed at those who identify with a system that primarily serves the needs of others and only incidentally theirs. I can only conclude that such identification is symptomatic of low self-esteem, as self-interest alone would dictate otherwise.

We are now headed towards a rendering so extreme that such divisions will become clear and perhaps the many will finally cease identifying with a system that benefits the few closest to the fountainhead of credit while penalizing the many farther downstream which usually includes them.

Modern economics is a sophisticated Ponzi-scheme cross-pollinated with a shell game designed for the advantage of government, banks and those at the front of the line wherein money is created out of thin air to be loaned to others who will in the end be indebted beyond their means to repay and whose economic futures will be destroyed by the inevitable confluence of the bankers’ compounding interest and their constant inflation of the money supply.

If you doubt this is so, an article The Event by Eric Andrews, is a must read, especially the areas directly concerned with money and its creation. If you already believe this is so, Eric Andrew’s article is even more important. Clear, concise, and conclusive, it points out the inherent problems with our debt-based system of paper money, a system that contains its own seeds of destruction, seeds which are now flowering, www.financialsense.com/fsu/editorials/2009/0921.html.

Andrews also points out where we are and perhaps headed without guessing when we will arrive. We face a minefield of possible scenarios as deflation, inflation, hyperinflation, or a combination thereof may soon be in our future as the bankers’ paper money is now about to self-destruct.

THE BARRICKADE TO GOLD CRUMBLES

We are in the final stage of the paper-boys’ efforts to preserve their crumbling fiefdoms against gold’s advance. In truth, gold is not advancing at all. It is standing still. It is the constant decline in the value of paper money that makes it appear that gold is rising. Extant virtue needs no movement.

While I am in deep admiration of Professor Fekete’s insights on gold and money, I do not envy the price he paid for his learning. Professor Fekete’s understanding of monetary chaos derives from a childhood in Hungary beset by a hyperinflation more severe than even that of the Weimar Republic or Zimbabwe.

Professor Fekete then escaped communist oppression in Hungary to make his way to Canada where he received a front-seat look at the central bank and corporate collusion underpinning capitalism’s fraudulent paper-money scheme.

Upon retirement, Professor Fekete had invested his savings in Barrick Gold Corporation, a Canadian gold mining company. But instead of an expected return on his savings, the professor got an unexpected education in how Barrick assisted central banks in suppressing gold.

Barrick’s forward selling of unmined gold from 1988 to 2003 put thousands of ounces of paper gold on the market which forced down the price of physical gold. For years, the forwards sales of Barrick and Anglo-Gold Ashanti were responsible for the downward spiral of gold’s price, a goal desired by investment banks doing the bidding of central bankers.

Professor Fekete, as a shareholder, clearly understood that Barrick’s forward selling (or so-called hedging operations) came at the expense of shareholders. It did, however, directly benefit the central banks who wanted to cap the price of gold. Today, the “Barrick-cap”, a major “Barrickade” against gold’s rise is no more.

This month, on September 8, 2009, Barrick Gold Corporation announced it was taking a $5.9 billion charge against 3^rd quarter earnings in order to buy back all its forward contracts, a considerable sum to pay for succumbing to the wishes of those in power.

Once again, Professor Antal Fekete was right. Sponsored by the Gold Standard Institute, Professor Fekete will be in Canberra, Australia, November 2-5 speaking on “The World Financial Crisis and the Vanishing Gold Basis”, see www.professorfekete.com. I consider the Professor to be a light in these dark times. I and others will also be speaking.

It is absurd to discuss the price of gold without discussing central bank or government efforts to force the price of gold down, an effort that may soon be ending due to the imminent advent of the end-game.

In my Youtube video, http://www.youtube.com/watch?v=5o36Dj-ukPo, I discuss the possibility of whether or not the US will again confiscate gold. I wish the possibility were not so.

But, today, governments cannot see an alternative to that offered by central bankers, the merchants of debt who have enslaved nations with their fraudulent debt-based paper money. As yet, there are no alternatives to the bankers’ offerings. But after bankers and governments fall—and they will—alternatives will then become clear

Buy gold, buy silver, have faith.

Darryl Robert Schoon

(CFD.net.au – Contract for Difference, Share, Forex, ETFs, Commodities Traders) –

by Boris Schlossberg

,

FREE Forex Report

The 5 Things That Move The Market

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Contact Author

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Biography

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The Majors

There are only four major currency pairs in forex, which makes it a quite easy to follow the market. They are:

EUR/USD - eu …

by Boris Schlossberg , FREE Forex Report The 5 Things That Move The Market ( Contact Author | Biography ) The Majors There are only four major Currency pairs in Forex, which makes it a quite easy to follow the market. They are: EUR/USD - EUro / U.S. dollar USD/JPY – U.S. dollar / Japanese yen GBP/USD – British pound / U.S. dollar USD/CHF - U.S. dollar / Swiss FRAnc It is understandable why the United States, the EUropean Union and Japan would have the most active and liquid currencies in the world, but why the United Kingdom? After all, as of 2005, India has a larger GDP ($3.3 trillion vs. $1.7 trillion For the U.K.), while Russia’s GDP ($1.4 trillion) and Brazil’s GDP ($1.5 trillion) almost match U.K.’s total economic production. The explanation, which applies to much of the Forex market, is tradition. The U.K. was the first economy in the world to develop sophisticated capital markets and at One time it was the British pound, not the U.S. dollar, that served as the world’s reserve Currency. Because of this legacy and because of London’s primacy as the center of global Forex dealing, the pound is still considered One of the major currencies of the world. The Swiss FRAnc, on the other hand, takes its place amongst the four majors because of Switzerland’s famed neutrality and fiscal prudence. At One time the Swiss FRAnc was 40% backed by gold, but to many traders in the Forex market it is still known as “liquid gold”. In times of turmoil or economic stagflation, traders turn to the Swiss franc as a safe-haven Currency. The largest major pair – in fact the single most liquid financial instrument in the world – is the EUR/USD. This pair trades almost $1 trillion per day of notional value from Tokyo to London to New York 24 hours a day, five days a week. The two currencies represent the two largest economic entities in the world: the U.S. with an annual GDP of $11 trillion and the Eurozone with a GDP of about $10.5 trillion. Although U.S. economic growth has been far better than that of the Eurozone (3.1% vs.1.6%), the Eurozone economy generates net trade surpluses while the U.S. runs chronic trade deficits. The superior balance-sheet position of the Eurozone and the sheer size of the Eurozone economy has made the euro an attractive alternative reserve currency to the dollar. As such, many central banks including Russia, Brazil and South Korea have diversified some of their reserves into euro. Clearly this diversification process has taken time as do many of the events or shifts that affect the Forex market. That is why one of the key attributes of successful trend trading in Forex is a longer-term outlook. Observing the Significance of the Long Term To see the importance of this longer-term outlook, take a look at Figure 1 and Figure 2, which both use a three- simple-moving-average (three-SMA) filter. Figure 1 - Charts the EUR/USD exchange rate from Mar 1 to May 15, 2005. Note recent price action suggests choppiness and a possible start of a downtrend as all three simple moving averages line up under one another. Figure 2 - Charts the EUR/USD exchange rate from Aug 2002 to Jun 2005. Every bar corresponds to one week rather than one day (as in Figure 1). And in this longer-term chart, a completely different view emerges - the uptrend remains intact with every down move doing nothing more than providing the starting point for new highs. The three-SMA filter is a good way to gauge the strength of trend. The basic Premise of this filter is that if the short-term trend (seven-day SMA) and the intermediate-term trend (20-day SMA) and the long-term trend (65-day SMA) are all aligned in one direction, then the trend is strong. Some traders may wonder why we use the 65 SMA. The truthful answer is that we picked up this idea from John Carter, a futures trader and educator, as these were the values he used. But the importance of the three-SMA filter not does lie in the specific SMA values, but rather in the interplay of the short-, intermediate- and long-term price trends provided by the SMAs. As long you use reasonable proxies for each of these trends, the three-SMA filter will provide valuable analysis. Looking at the EUR/USD from two time perspectives, we can see how different the trend signals can be. Figure 1 displays the daily price action for the  months of March, April and May 2005, which shows choppy movement with a clear bearish bias. Figure 2, however, charts the weekly data for all of 2003, 2004 and 2005, and paints a very different picture. According to Figure 2, EUR/USD remains in a clear uptrend despite some very sharp corrections along the way. Warren Buffett, the famous investor who is well known for making long-term trend trades, has been heavily criticized for holding onto his massive long EUR/USD position which has suffered some losses along the way. By looking at the formation on Figure 2, however, it becomes much clearer why Buffet may have the last laugh. Commodity Block Currencies The three most liquid commodity currencies in Forex markets are USD/CAD, AUD/USD and NZD/USD. The Canadian dollar is affectionately known as the “loonie”, the Australian dollar as the “Aussie” and the New Zealand Dollar as the “kiwi”. These three nations are tremendous exporters of commodities and often trend very strongly in concert with the demand for each their primary export commodity. For instance, take a look at Figure 3, which shows the relationship between the Canadian dollar and prices of crude oil. Canada is the largest exporter of oil to U.S. and almost 10% of Canada’s GDP comprises the energy exploration sector. The USD/CAD trades inversely, so Canadian dollar strength creates a downtrend in the pair. Figure 3 – This chart displays t he relationship between the loonie and price of crude oil. The Canadian economy is a very rich source of oil reserves. The chart shows that as the price of oil increases, it becomes less expensive for a person holding the Canadian dollar to purchase U.S.dollars. Although Australia does not have many oil reserves, the country is a very rich source of Precious metals and is the second-largest exporter of gold in the world. In Figure 4 we can see the relationship between the Australian dollar and gold. Figure 4 - This chart looks at the relationship between the Aussie and gold prices (in U.S. dollars). Note how a rally in gold from Dec 2002 to Nov 2004 coincided with a very strong uptrend in the Australian dollar. Crosses Are Best for Range In contrast to the majors and commodity block currencies, both of which offer traders the strongest and longest trending opportunities, currency crosses Present the best range-bound trades. In forex, crosses are defined as Currency Pairs that do not have the USD as part of the pairing. The EUR/CHF is one such cross, and it has been known to be perhaps the best range-bound pair to trade. One of the reasons is of course that there is very little difference between the growth rates of Switzerland and the European Union. Both regions run current-account surpluses and adhere to fiscally conservative policies. One strategy for range traders is to determine the parameters of the range for the pair, divide these parameters by a median line and simply buy below the median and sell above it. The parameters of the range is determined by the high and low between which the prices fluctuate over a give period. For example in EUR/CHF, range traders could, for the period between May 2004 to Apr 2005, establish 1.5550 as the top and 1.5050 as the bottom of the range with 1.5300 median line demarcating the buy and sell zones. (See Figure 5 below). Figure 5 - This charts the EUR/CHF (from May 2004 to Apr 2005), with 1.5550 as the top and 1.5050 as the bottom of the range, and 1.5300 as the median line. One range-trading strategy involves selling above the median and buying below the median. Remember range traders are agnostic about direction (for more on this, see Trading Trend or Range? ). They simply want to sell relatively overbought conditions and buy relatively oversold conditions. Cross currencies are so attractive for the range-bound strategy because they represent Currency Pairs from culturally and economically similar countries; imbalances between these currencies therefore often return to equilibrium. It is hard to fathom, for instance, that Switzerland would go into a depression while the rest of Europe merrily expands. The same sort of tendency toward equilibrium , however, cannot be said for Stocks of similar nature. It is quite easy to imagine how, say, General Motors could file for bankruptcy even while Ford and Chrysler continue to do business. Because currencies represent macroeconomic forces they are not as susceptible to risks that occur on the micro level – as individual company Stocks are. Currencies are therefore much safer to range trade. Nevertheless, risk is present in all speculation, and traders should never range trade any pair without a stop loss. A reasonable strategy is to employ a stop at half the amplitude of the total range. In the case of the EUR/CHF range we defined in Figure 5, the stop would be at 250 pips above the high and 250 below the low. In other words if this pair reached 1.5800 or 1.4800, the trader should stop him- or herself out of the trade because the range would most likely have been broken. Interest Rates – the Final Piece of the Puzzle While EUR/CHF has a relatively tight range of 500 pips over the year shown in Figure 5, a pair like GBP/JPY has a far larger range at 1800 pips, which is shown in Figure 6. Interest rates are the reason there’s a difference. The Interest rate differential between two countries affects the trading range of their Currency Pairs. For the period represented in Figure 5, Switzerland has an Interest Rate of 75 basis points (bps) and Eurozone rates are 200 bps, creating a differential of only 125 bps. However, for the period represented in Figure 6, however, the Interest Rates in the U.K are at 475 bps while in Japan – which is gripped by deflation - rates are 0 bps, making a whopping 475 bps differential between the two countries. The rule of thumb in forex is the larger the Interest Rate differential, the more volatile the pair. Figure 6 – This charts the GBP/JPY (from Dec 2003 to Nov 2004). Notice the range in this pair is almost 1800 pips! To further demonstrate the relationship between trading ranges and interest rates, the following is a table of various crosses, their interest rate differentials and the maximum pip movement from high to low over the period from May 2004 to May 2005. Currency Pair Central Bank Rates (in basis points) Interest Rate Spread (in basis points) 12-Month Trading Range (in pips) AUD/JPY AUD – 550  / JPY – 0 550 1000 GBP/JPY GBP – 475 /  JPY – 0 475 1600 GBP/CHF GBP – 475 / CHF – 75 400 1950 EUR/GBP EUR – 200 / GBP – 475 275 550 EUR/JPY EUR – 200 / JPY – 0 200 1150 EUR/CHF EUR – 200 / CHF – 75 125 603 CHF/JPY CHF – 75 / JPY – 0 75 650 While the relationship is not perfect, it is certainly substantial. Note how pairs with wider interest rate Spreads typically trade in larger ranges. Therefore, when contemplating range trading strategies in forex, traders must be keenly aware of rate differentials and adjust for volatility accordingly. Failure to take interest rate differential into account could turn potentially profitable range ideas into losing propositions. The forex market is incredibly flexible, accommodating both trend and range traders, but as with success in any enterprise, proper knowledge is key. by Boris Schlossberg , ( Contact Author | Biography ) Boris Schlossberg serves as director of currency research at GFT Forex. He is a weekly contributor to CNBC’s Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of “Technical Analysis of the Currency Market” and the co-author of “Millionaire Traders” with Kathy Lien.

Source: Identifying Trending & Range-Bound Currencies

FRANKFURT, Sept 18, 2009 (AFP) – The eurozone’s balance of payments swung back into positive territory in July for the first time in more than a year, showing a surplus of 6.6 billion euros (9.6 billion dollars), the European Central Bank said Friday.

The last time the balance of payments, an overall measure of all current payments into and out of a country or region, showed a surplus was in February 2008, when it came to 2.6 billion euros.

On the financial account, the ECB reported a net inflow of 18 billion euros, as more money was ploughed into eurozone assets than was invested abroad by eurozone companies and institutions.

The balance of payments is a closely watched indicator of the ability of the area concerned to pay its way in the world. It is important for the long-term confidence of investors and trading partners.

On Thursday, official European Union data showed the eurozone had posted a seven-year trade surplus high of 12.6 billion euros, an additional sign of European economic recovery.

The eurozone is emerging from recession, the European Commission says, amid "unprecedented" state spending…. From BBC News. Full story

This site may contain information about: recession buster. For a different topic see less crowded. The blog is also related to: france recession.