ProfitsOn

EURUSD: Has the market bottomed?

2017-06-16T22:43:00.000-04:00

As the economic outlook improves, the European Central Bank (ECB) is considering monetary tightening ahead. The US is watching inflationary numbers closely since a recent contraction might be related to the decline of consumes. The euro has bounced off key support lines and might rise further in the coming months.

Europe: What is left to sell?

During last week’s monetary policy for June, the ECB finally dropped the long-lasting reference to potentially lowering rates in the future. Instead, it expects to keep rates at current levels for some time. The economy has been continuously improving, albeit at a slow pace. The ECB changed its gross domestic product (GDP) forecasts for 2017 to 2%, to 1.8% for 2018 and to 1.7% for 2019. For the first time since 2011, economic risks are now considered more balanced. Inflation remains weak and this will delay the first rate increase after many years of cuts. In addition, while the job market has improved, the quality of the new jobs seems to be low. As a result, Mr. Draghi is asking for more patience. Quantitative easing stays in place for now, and all decisions are postponed to September’s meeting (and maybe after that). What is left to sell? Key European political elections have been completed, and, for the next four or five years, continental Europe has elected parties that are pro Union. Will they succeed in keeping the European Union (EU) together? Only time will tell. Self-preservation could come into play since the next decade will be crucial for the survival of the European Community. The decision to pursue the so-called “two-speed Europe” goes in the direction of a more meaningful and balanced common market.

US: Inflation is under the lens

While Europe is gaining traction, the US is being dragged into a political impasse. The high level of animosity between various parts of the political arena, the media and the public could weigh on consumer confidence during the long run. In May, excluding food and energy, retail sales declined 0.30% compared to the expected increase of 0.20%. Discretionary spending was also hit, and, for the second month, sales at food and beverage locations fell to 2.3% from 3.0% annually. Good news are discounted in current prices. Reforms are on the backburner for now. Therefore, what is left to buy? The Federal Reserve has increased rates by 0.25% in June, and it is expected to tighten more in coming meetings. The Fed anticipates the job market to improve further in the second half of 2017. Wages are under the lens, and the Fed considers the decline of inflation as temporary. Finally, the Fed outlined a plan for normalizing the balance sheet created during the three rounds of quantitative easing. Mrs. Yellen remained vague on when it will start the process since economic growth could change for the better or for the worse. Inflation is the major concern since the decline of prices might not be temporary and might be related to demand’s contraction.

EUR/USD: Has a new bull cycle started?

After years of decline, the euro has bounced off a key support line at 1.04. Considering the divergence between price and the Relative Strength Index (RSI) indicator on the weekly chart, the next target is 1.15. A move above that level could support prices to 1.18/1.28. Since 1974, the EUR/USD (DMUSD) has tended to bottom every 15 years: 1995, 2000, and 2016 (?). Declines have lasted for 5–6 years (1980–1985, 1995–2000 and 2011–2016) before reversing. Downtrends have extended for about 40%–50% top to bottom (1.17–0.58, 1.47–0.84 and 1.52–1.04).

Angelo Airaghi, www.ProfitsOn.com

The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed, neither the information presented nor any opinion expressed constitute a solicitation of the purchase or sale of any forex, futures or commodity product. Those individuals acting on this information are responsible for their own actions. Forex, futures and commodity trading may not be suitable for all recipients of this report. The risk of loss in trading forex, futures and options can be substantial. Each investor must consider whether this is a suitable investment. All recommendations are subject to change at any time. Past performance is not a guarantee of future results

U.S. Stocks Are Reaching Crucial Highs

2016-07-07T15:18:00.002-04:00

Brexit was not expected, and a period of adjustment is needed. The U.S. dollar should continue rising, while U.S. stocks could decline sharply over the medium term.

Following months of a harsh campaign, the sovereign citizens of the United Kingdom voted for a new future away from the European Union. It was an unexpected decision that could take some time to digest. In fact, a few years of intense negotiations with the EU are now necessary, considering the strong trade ties between the two entities. Incertitude would undermine economic growth in the U.K., resulting in less job creation and more unemployment. Scotland might take the opportunity to hold another referendum and vote to leave the U.K. The Bank of England should cut interest rates to zero and increase extraordinary measures to support the economy. As a result, the pound sterling should lose more ground against other currencies.

The easiest way, nonetheless, would be for the U.K. to stay in the European Economic Area (EEA), which means following European laws concerning the single market, paying some duties to the EU budget, and allowing EU citizens to live and work on the island (U.K. citizens could do the same on the European continent). Things will be more complicated if the U.K. does not join the EEA. All treaties should be renegotiated on a bilateral level. On the positive side, a weaker currency will boost competitiveness. The U.K. could directly decide on regulations and laws that can best help the country. Europe, on the other hand, is expected to change gears and build a leaner, more efficient community. Otherwise, the price would be more countries asking to go it alone, especially during hard economic times.

Will the U.S. be affected?

Trade relations are too limited for the U.S. to suffer from an economic slowdown on the island. However, lesser growth in Europe would be felt on the other side of the Atlantic as well. The U.S. dollar could play the safe havenrole again, and the U.S. Dollar Index could increase to 102. Stocks are targeting 2100/2160 again on the belief that the Federal Reserve will not touch interest rates until the end of this year. In May, the job report was a big surprise. Non-farm payrolls rose by a tiny 38,000, the smallest increase in six years. In addition, the jobless rate declined to 4.70%. However, this might signal that more people are leaving the workforce, as the labor participation rate declined to 62.60% from 63% in March. In effect, the number of part-timers rose in May after falling for all of 2015. As a result, wages fell 2.4%.

It is true that one month of data does not make a trend. The next five months will be watched carefully by the Fed. In reality, the U.S. economy is still benefiting from the positive momentum. U.S. personal spending rose 0.4% in May on top of April’s 1.1% increase. Durable and non-durable goods improved. More Americans are going to restaurants and spending on cars. Will it last? Only time will tell. The effects of the British referendum on a globalized economy are yet to be seen. A fast separation is crucial. Nonetheless, stocks are reaching a critical point and could decline 30% to 50% over the medium term. Why? Since the bottom of 2010, the Dow Jones Industrial Index has risen more than 60% (high-low) without any important corrections. In 100 years, the market has behaved in a similar way twice. From 1932 to 1936, the DJI increased about 79% (high-low) and then corrected 50% of the move. In 1982-1987, it jumped 72% (high-low) and declined about 50%.

Angelo Airaghi, www.ProfitsOn.com

The US Dollar Could Decline in 2016

2015-11-27T12:39:00.003-05:00

Image by Tyler Merbler via Flickr

The Fed will likely raise interest rates in December. Hikes should be gradual, while monetary policy will remain accommodative. What could happen to US stocks and the US dollar?

The US dollar is close toan important top

This effect was anticipated during the FOMC minutes of October 27 and 28, when members stressed inflation was turning around and current weak numbers were correlated with a slump in oil prices and a strong US dollar. In October, the consumer price index notably declined, while inflation was up 0.2% year-on-year. This increase of 1.9%, excluding food and energy, represented the largest move since June 2014. Economic conditions will continue to be scrutinized for long-term prospective outcomes. Worldwide geopolitical tensions could pose a serious challenge to economic growth in 2016; however, most Fed officials now agree that conditions are favorable for the first rate hike in nine years. Nonetheless, they will be gradual, with the risk remaining on the downside, considering poor labor participation and weak productivity. As a result, while Fed funds should increase, monetary policies will stay supportive of growth.

Over the short term, stocks should continue their rebound. The next targets for the S&P 500 index could be 2100 and eventually 2170. Then, a period of consolidation is possible, even though the long-term picture remains bullish. At the contrary, the US dollar might be close to an important top. Why? A rate hike has been largely discounted in current prices. In addition, during the past 40 years, the US dollar has often trended at about 17% (top to bottom) against other currencies, followed by a correction of about 40% of the entire move. Since 2014, the US dollar index has risen by approximately 20% to 100. Considering also the huge technical reversal pattern currently in formation, in 2016, the US dollar index could decline to 94/92. The correction should only be temporary, as long-term fundamental conditions, such as favorable rate differentials with other countries, still point to the upside for the greenback.

The US economy is resilient, despite signs of weakness

With just below 230,000 new jobs registered in August and September, the private sector stalled this past summer. While construction and manufacturing slowed, the big decline was seen in the service sector. On average, only 147,000 jobs were created in the three months leading up to September 2015 compared to the average 259,000 positions seen during the same period of 2014. The negative results might mirror a slowdown of economic growth in the US. As an example, the ISM purchasing manager’s survey showed a decline in activity. In particular, manufacturing has performed poorly. The ISM index fell 7.7 points to 50.2 in September. On the contrary, the non-manufacturing index was still at 57 points, which is significantly above the average. This could be a sign of more job creation ahead. Initial claims are at their lowest level of the past 15 years.

October numbers confirmed that the US economy is still resilient. Manufacturing growth increased 0.4%, with durable goods orders rising 0.5%. In addition, US industry is still making good gains. Manufacturing output rose 1.9%, aggregate weekly hours worked increased 0.1%, and wages rose 2.1% year-on-year. Labor costs are steady, helping US exports, despite the strong dollar and weak global economy. Emerging countries’ growth, which includes almost 80% of the total output, is plummeting. Nearly 30% of Germany’s exports alone are delivered to emerging countries. In Germany, in the third quarter of 2015, the GDP increased by only 0.3% (quarterly) compared to +0.4% in the previous quarter. Russia and Brazil are already in a recession. China’s economy, which accounts for 20% of the world’s industrial production, has likely fallen more than public GDP numbers have indicated. India is the exception thus far, due to a more diversified economy.

Angelo Airaghi, ProfitsOn.com

Short-Term Trading: GBPUSD

2015-10-03T10:39:00.000-04:00

++ GBPUSD, STOP LOSS AT 1.5030, TRADING TARGET AT 1.5330.

The market is oversold. There is a divergence between the RSI indicator and prices on the daily/weekly charts.

EURUSD: Will It Decline Further Short-Term?

2015-09-25T15:59:00.000-04:00

(Image by peasapvia Flickr)

The Fed is holding rates steady, while Europe might increase its quantitative easing program. What will happen to the EUR/USD?

As expected, the United States Federal Reserve decided to adopt a wait–and–see approach torateson September 17. The Fed postponed all decisions to future meetings because it needs more time to assess global economic turbulence and increased volatility in U.S. stock markets. No nation appears to be immune from the latest economic reshuffle, despite good GDP numbers reported in the U.S. On Thursday, during a speech Thursday in Amherst, Massachusetts, Fed Chair Janet Yellen confirmed that the institution remains on track to rise rates by the end of this year.

When will be a good time? December 2015, three months after the September meeting, could present a good opportunity for the Fed to review its decision. It might be clearerthen whether we are experiencing a deep economic contraction or merely a mild slowdown. Under normal circumstances, with an unemployment rate around 5.0%, rates would already have been increased. However, we are not living in normal times. The U.S. economy is still performing below full capacity, inflation is extremely low, and labor force participation remains weak. On the other hand, postponing a rate hike will increase incertitude, creating a false sense of complacency among financial institutions and players.

For example, some U.S. financial brokers have high leverage for private bond allocations. Globally, in addition, the prolonged zero-interest policy has prompted foreign companies to increase their exposure to the U.S. dollar, perhaps without much consideration of the increased exchange rate risks. As the U.S. rate hike has been postponed, the European Central Bank (ECB) might be requested to expand its quantitative easing program when it meets in December a few days before the Fed. Economic growth in Europe fell to 0.3% in Q2 2015 from 0.4% in the previous quarter. Will the ECB expand its program? Only time will tell. In the meantime, expectations of an increased rate spread differential between the U.S. and Europe should further support the U.S. dollar and penalize the euro. As a result, the EUR/USD could decline to 1.0970/1.0810 over the short term.

Angelo Airaghi, www. ProfitsOn.com

Fed’s Decision is Under the Lens

2015-09-15T19:54:00.002-04:00

(Image by www.lumaxart.com via Flickr)

The U.S. Federal Reserve will meet this week to discuss rates. What could happen to U.S. stock markets?

Is it too early?

For months, this has been called the normalization meeting, and the Fed has been expected to begin a series of rate hikes after several years of supportive monetary policy. However, the reality is that the Sept. 16–17 meeting could not happen at a worse time. The turbulence shown by the Chinese stock market in August, which was reflected in U.S. stock prices, might have put a stop to the plans of Fed Chairwoman Janet Yellen. There is an emerging idea that a hike right now would have very negative consequences for the U.S. economy. As a result, the Fed might decide to adopt a wait-and-see approach and postpone the decision for several months.

Inflation stays very low for now

In effect, inflation is very low and should stay there for the foreseeable future. The 0.3% year-on-year increase of the Personal Consumption Expenditures (PCE) index reported in July was far lower than the Fed target of 2.0%. In addition, wages are not rising, while the strong dollar is taking a toll on exports. The manufacturing sector, which is mainly determined by foreign trade, has been penalized, declining 0.7% in the first quarter of 2015 before increasing 1.30% in the second quarter. The first six months of 2015 were the slowest for manufacturing since the end of the Great Recession, compared to the first six months of 2014. In addition, the recessionary winds blowing across the globe do not aid international commerce. Foreign trade fell worldwide, with the exception of Japan and the United Kingdom, which had combined trade flows of only 8.0%.

Stocks might be looking for a base

Although the U.S. gross national product grew nearly 4.0% in the second quarter of this year, U.S. industrial production fell 1.4% in the second quarter after going nowhere during the first quarter. Apparently, June’s rebound was supported by growth in the mining sector, after falling in both April and May. The short-term scenario also appears cloudy, according to the latest New York and Philadelphia Fed surveys. Confidence among business leaders in the manufacturing sector has deteriorated. Domestic demand has been lackluster. In June, retail sales declined 0.3% and were negative when excluding gasoline, cars, and building materials. The real estate market, though, remains strong.According to past performance, it could trend up for 9 to 10 years from the lows hit in 2009–10.

The S&P 500 index finds strong support at 1870/1830. This area might be tested again in the short term. If it holds, it could fuel a bounce of the index to 2050/2010 in the last two or three months of the year. This bounce could be helped by the extreme oversold conditions shown by various technical and volatility indicators.

Angelo Airaghi, www.ProfitsOn.com

Greece says: “NO”!

2015-07-07T15:38:00.002-04:00

(Image by By fronas.g via Flickr)

The Greek referendum results could not have been clearer and louder. Greeks are fed up of years of poverty and broken promises, the latter mostly from local politicians. What could happen in the financial markets now?

Mr. Tsipras, what is the plan?

Greeks are not interested in the European plan for debt restructuring, and they believe the political agenda of Mr. Tsipras will take them out of the slums.

Nonetheless, they need more money, for the country is virtually bankrupt and cannot pay even the most basic services. As a result, Greece is still relying on the international community for help—more money in exchange for more promises.

In fact, repaying the debt is not the main issue. How will Greece be able to function as a normal state again without external help? If we consider history, the current far left government will not be able to jump-start the economy to create wealth and jobs for Greeks. Communism is a utopia that does not work in reality. So, there will be more broken promises, and imaginary enemies will be blamed for future failures.

Short-term volatility could increase

The truth is that a Greek exit from the Eurozone, despite the very sad ending, will be damaging for the country itself, but it should touch only marginally the other European states. Private investments in Greece are very limited. Exports to Greece represent only 0.5% of the total European exports. Weaker European nations, such as Italy, Spain, and Portugal, have improved their economy since 2011, and the contagion should be limited this time. Finally, if needed, the European Central Bank (ECB) is ready to step in with other measures, such as Outright Monetary Transactions, which means buying government bonds on the exchange for a country to implement economic corrections. For now, the ECB is still providing Greek banks with the benefits of the emergency liquidity assistance and should support the local banks over the short term as well. It is clear, however, that this free fall of money cannot last forever.

Greece will soon face another important deadline. On July 20, it should repay €3.5 billion in Greek bonds. Will it be able to do so? Over the short term, financial markets should remain under pressure, considering economic incertitude elsewhere (e.g., China). Stocks could correct, bonds might increase, and the US dollar could keep the safe-haven status

Angelo Airaghi, www.ProfitsOn.com

The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed, neither the information presented nor any opinion expressed constitute a solicitation of the purchase or sale of any forex, futures or commodity product. Those individuals acting on this information are responsible for their own actions. Forex, futures and commodity trading may not be suitable for all recipients of this report. The risk of loss in trading forex, futures and options can be substantial. Each investor must consider whether this is a suitable investment. All recommendations are subject to change at any time. Past performance is not a guarantee of future results. Please Note: All performance figures and illustrations were obtained using historical back testing on a computer and are not the results of an actual account.

Is The Eurozone Rebounding?

2015-02-17T15:58:00.000-05:00

Its economy is improving and could strengthen by year-end. Germany continues as the leading force, while Spain is growing at double the pace of the European average. The secular US dollar uptrend is intact, but could temporarily lose steam in the second part of 2015.

Spain is targeting fresh highs

There is finally some good news for the Eurozone. Despite geopolitical tensions at the Far East borders and reiterations of uncertainties in some southern countries, European retail sales rose almost 1.0% in the last quarter of 2014. Exports are increasing, while imports are marginally higher. In January, consumer confidence increased again and could support continued economic momentum in the second part of the year. A weaker Euro currency is beneficial, as well as low energy prices. Additionally, the decision of the European Central Bank (ECB) to implement extraordinary measures should boost demand. In March, the central bank will begin to buy EUR 60bn of private and public debt securities until September 2016. In reality, the entire Eurozone is showing signs of recovery, although growth remains uneven. For example, as Greece is once again on the brink of default, Germany can celebrate a new expansionary trend. Its Gross Domestic Product is growing above pre-recession levels. Germany is not alone, however. In France, it is just above pre-crisis standards. Spanish growth is also accelerating and will soon reach pre-crisis standards. Italy, in contrast, is underperforming, as the variegate government of Mr. Renzi, often engaged in disagreements, has not yet increased Italian consumer confidence.

The US economy is trending

Economic recovery in the US and Great Britain is also helping European sales. The latest data, from the US in particular, is showing that the GDP declined more than two points between the third and fourth quarter of 2014. A correction was expected after the almost 5.0% growth seen last year, which was mainly supported by government spending and strong exports. In reality, final sales to the private sector are robust. Spending was up 4.0% a quarter over the last three quarters of 2014. Overcapacity continues at a high rate, and inflation is still declining, which should limit wage growth for now. There are, nevertheless, a few challenges that might bring the European economy away from its recovery path. Russia is in recession, while China and Brazil are underperforming for now. Finally, Greece remains a ticking bomb that could go off at any moment. The Eurozone can survive Greece’s exit, but the shock must be digested and world markets could then correct. The US dollar should uptrend for a few more years against major currencies, but could soften during the second part of this year to 93 and eventually 90 (US dollar index). Seasonal and cyclical conditions seem to support a short-term decline for the US dollar. The Federal Reserve is expected to increase rates sometimes this year, but the timing is unclear. The economic growth could decelerate, while core prices are forecasted to stay weak. As a result, the first rate hike could happen later than expected by the FOMC and the increase might be gradual.

Angelo Airaghi, www.ProfitsOn.com

2015: The US Dollar Can Rise Further

2014-12-16T19:48:00.001-05:00

While the rest of the world is on the brink of recession, the US might increase interest rates, and the US dollar could continue its upward trend, which started in 2011, for 5–7 years.

The US is leading again

In the US, recent data confirms the job market trend appears to be strengthening. In November, the labor market showed a healthy 321,000 new positions added in the non-farm sector, while the unemployment rate remained stable at 5.8%. In 2014, the average of the first 11 months has been above 230,000, while in 2012/13 it was less than 200,000 and in 2011 only 170,000. In addition to the improvement in the employment rate, the Gross Domestic Product (GDP) is increasing at an annual rate of almost 4.0%. Is this data telling the whole truth? Federal Reserve Chair Yellen stated that she would like to see real wages rising; otherwise, it might undermine consumer spending growth. In reality, wage growth has been almost flat in the past four years. The price index for personal consumption expenditures as a deflator increased only marginally over the past four years (less than 1.00%). In addition, the number of people available for work, who have abandoned the search of employment, is still very large. The study of cycles anticipates the unemployment rate to bottom out between 5.10% and 5.5% and then rise again for the final stage of the uptrend that began in 2000.

US DOLLAR INDEX TREND

A cloudy world economy

While the US is pulling, in Europe, growth might be only around 1.0%. The European Central Bank is expected to start, like the US did in the past, a broad based quantitative easing program that might include the large Eurozone bond market. So far, ECB monetary policy has been devoted to easing the funding conditions of banks, but this strategy will not be enough to reach ECB’s balance sheet objectives (returning to the level in force at the beginning of 2012). The request for the second Targeted Longer Term Refinancing Operations (TLTROs) and buying Covered Bonds and Assets Backed Securities (ABS) was only euro 130 billion. As Europe is struggling, the rest of the world is in or at the brink of recession. China is underperforming, and November’s rate cut testifies to the fact that the government is well aware that growth is at risk. Japan is in recession, and emerging markets could be hit, in one way or another, by the decline in commodity prices. With rates increasing at home and declining abroad, the US dollar should continue to reinvigorate the uptrend that started in 2011. It might last for 5–7 years like it did from 1980–1985 and 1995–2002.

Angelo Airaghi, www.ProfitsoOn.com

The Federal Reserve Ends QE3

2014-11-02T16:15:00.003-05:00

The latest data confirms that the US economy is improving, but it has not yet accelerated. The US dollar consolidates the uptrend.

US domestic demand subdued

In effect, the growth is still not enough, and the economy stays fragile in the face of a very low inflationary environment. The first estimate of the gross domestic product (GDP) for the third quarter was higher than previously forecast, +3.5% annualized, mainly due to the strength in exports, which might have been contributing for more than 1.2 points. In the contrary, the internal demand by the private sector declined to 2.9% year-on-year from the 3.0% shown in the second quarter. The results are quite disappointing and are only a fraction away from the average shown after the recession. In reality, the businesses do not appear to be as optimistic about an increase of demand, and the Federal Reserve should remain vigilant despite the recent announcement of ending the third wave of quantitative easing (QE3).

Is the US dollar trending for the long term?

Starting October 31, the Federal Reserve will stop increasing its balance sheet, but it will not stop buying treasuries and mortgage-backed securities. The decision had only one dissenter, Mr. Narayana Kocherlakota (Minneapolis), and the markets took this announcement as a change in policy, which should lead to an increase of the federal funds rate within a reasonable time. Are they correct? Only time will tell. Nevertheless, the study of cycles seems to confirm that the US dollar index touched an important low in June 2014, which followed the secular low reached in 2011, after about 10 years of declines. In the past 35 years, the US dollar bottomed out in 1980 after 8 years of declines and in 1995 after 10 years of declines. It then increased for five and seven years respectively.

Angelo Airaghi, www.ProfitsOn.com

US Stocks Could Correct Short-Term

2014-09-06T22:21:00.003-04:00

In the US, the job market showed another decrease in the pace of job creation. In Europe, economic growth remains subdued. The Federal Reserve should remain on the sidelines for now, and US stocks could correct short-term.

US employment is stagnating

Federal Reserve Chair Janet Yellen is not happy about job market conditions in the US. There are too many workers out of the job market or working only part-time despite wanting full time positions. In reality, the latest numbers seem to confirm that employment is stagnating. In August, job data reported only 142,000 new positions, the lowest number since the end of winter. In July, the three-month average was 236,000, while in August it decreased to 207,000. The private sector is still underperforming and added only 112,000 positions in August on top of July’s 146,000. The unemployment rate fell again, to 6.1%; however, it was mainly supported by a weak labor-participation ratio, as 64,000 more people left the job hunt in August. It now takes an average of 32 weeks to find new work, while wages are not growing. Hourly earnings were up 0.2% over the month. As a result, the year-on-year rate of change stayed at 2.1%. The study of cycles seems to anticipate that unemployment will bottom out sometime in 2014/15 and then rise again for the final third wave of the current cycle.Under these conditions, the Fed will not raise increase in the near term, and stocks could correct from actual levels. The S&P 500 index might decline to 1960 and eventually to 1930, provided prices do not increase more than 2025 over the September futures contract.

Are recessionary winds blowing in Europe?

With such lackluster growth and mild inflation, the European Central Bank (ECB) decided to cut interest rates to the historic low of 0.05% and buy private-sector debt security. Since interest rates were already so low, combining these two monetary interventions was necessary to have a meaningful effect on the economy. This decision should keep the European currency under pressure over the medium term and, hopefully, boost exports. The other side of the story is that the ECB is now obliged to buy sovereign debt security if economic conditions do not improve tangibly. In effect, the German economy has been slowing recently after a very promising start to the year. The German IFO (Institute for Economic Research) index fell for the fourth consecutive month, to 106, the lowest level since July 2013. Foreign demand apparently played a role in the decline. Household confidence, as measured by the GFK (Society for Consumer Research) household survey, fell 35 points in August, the sharpest drop since the survey began in 1980. Considering the strong economic ties with Russia, concerns about the conflict between Russia and Ukraine are playing a role in the contraction of household confidence. Sanctions are not working; nevertheless, they are costly, and Russia can retaliate by cutting natural gas and oil supplies to Europe this winter. Exports to Russia have dropped 15%, and the embargo could hit various German companies operating from Russia, where German investment amounts to more than 30 billion Euros.

Angelo Airaghi, www. ProfitsOn.com

Short-term trading: --mini S&P 500 index September futures

2014-07-29T22:22:00.001-04:00

There is a divergence between the daily/weekly prices and the RSI indicators. Seasonal conditions favor a decline during the summer months. The market could decline to 1940/1920 provide the price does not rise above 2000.

The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed, neither the information presented nor any opinion expressed constitute a solicitation of the purchase or sale of any forex, futures or commodity product. Those individuals acting on this information are responsible for their own actions. Forex, futures and commodity trading may not be suitable for all recipients of this report. The risk of loss in trading forex, futures and options can be substantial. Each investor must consider whether this is a suitable investment. All recommendations are subject to change at any time. Past performance is not a guarantee of future results. Please Note: All performance figures and illustrations were obtained using historical back testing on a computer and are not the results of an actual account. No guarantee is inferred that future performance will be like the results shown. Futures, forex and options trading involve risk. There is a risk of loss in futures, forex and options trading.

EURUSD: Will It Rebound Short-Term?

2014-06-15T00:41:00.001-04:00

The ECB (European Central Bank) introduced a huge package of measures to inspire economic growth. EURUSD stays under pressure in the medium term, but could rebound to 1.37 short-term.

ECB: Timing the economy

After months of expectation, the European Central Bank has presented a huge package of measures aimed at boosting the anemic economic growth of the Eurozone and increasing inflation. The ECB cut interest rates to its lowest level ever to 0.15% and introduced a negative deposit rate of -0.10%. In addition, it will end the so called “sterilization tender,” which should increase money market liquidity by more than 150 billion euros. The ECB will also provide banks with any liquidity needed against collateral until the end of 2016. Finally, it might soon announce the purchase of ABS (asset-backed securities). It appears clear that Mr. Draghi considers the current time to be crucial. He does not, however, disregard the introduction of quantitative easing in the future—particularly if inflation were to decline during the summer. The news eased sovereign debt yields in Italy and Spain with the Italian hitting an historical low of 2.75%. EURUSD could stay under pressure over the medium term; however, in the short term, it might rebound to 1.37. The market is oversold. Funds are extremely short for EURUSD, and seasonal conditions support a rebound in the second half of the year.

US: The economy is still trending

Last week, the ISM Index confirmed the US economy is still performing well. The Production Index showed the widest movement reaching 61 (+5.3) and attesting that the winter weakness was only temporary. In fact, new orders rose to almost 57, and deliveries face challenges meeting the strong demand. The employment component, on the other hand, fell to 52.8. However, this increased in the manufacturing survey. Overall, US employment has performed nicely, but job creations fell to 217,000 in May. On an annual basis, the number is 281,000 versus 264,000 in 2013. The unemployment rate remained stable at 6.3%, but there is still a large number of part-time workers wanting to work fulltime. This represents 46% of the labor force as compared to 20% in the first half of 2000 for those not able to find work. The Job Openings and Labor Turnover Survey data for April offered a brighter picture and showed there were more than 4 million job openings, which is not too far from the peak of 4.6 million registered before the housing slump. Nonetheless, hiring improved only mildly, increasing by 2,000 people from the previous month. On the contrary, layoffs are at their lowest level since the index was created in 2000. The study of cycles still anticipates unemployment numbers to bottom out sometime in 2014/15 and then increase again for the last wave.

Angelo Airaghi

EUR/USD: The Upside Momentum Could be Limited

2014-04-12T08:54:00.001-04:00

Technical and fundamental factors seem to support EUR/USD falling to 1.36/1.32 over the medium term.

Europe: Recovering, but not so fast

During April’s meeting, the European Central Bank (ECB) postponed to the coming months any decision on rate. However, Mr. Draghi said quantitative easing is a possibility, since the bank does not want inflation to stay too low for too long. In March, it was 0.5%, the lowest level since 2009. Prices also are falling in Portugal, Spain, and Greece. They remained stable in Italy and France. A strong euro does not help, since companies are pressured to cut costs and/or reduce margins. The Council recognizes tangible improvements in economic growth. Nonetheless, recovery remains mild and unemployment high, supporting a persistent accommodative scenario. EUR/USD finds various levels of resistance, from 1.3850‒1.40. It could withhold current upside pressure, considering the divergence of price and Relative Strength Indicators (RSIs) on the weekly/daily charts, and re-address prices toward 1.36 and, eventually, 1.32 in the medium term.

U.S. unemployment still an issue

During a speech in Chicago, Fed Chair Janet Yellen confirmed that unemployment still is a priority. Labor “underutilization,” which is higher than 2001, recessionary levels, is the main focus. In fact, there still are a larger number of people working part time, despite wanting full-time work. In addition, finding work could require more than six months. The study of cycles seems to anticipate that unemployment will bottom out sometime in 2014 and then will rise again toward the highs of the final, third wave. The private sector still is repaying debt, and consumption is underperforming. Gross domestic product (GDP) growth from 2010‒2013 (1.5%) was less than growth from 2003‒2006 (2.2%). On the other hand, U.S. companies are doing much better, as external demand is supportive. The Fed will keep its bond-buying program unleashed, and this should support the dollar over the coming months.

Angelo Airaghi, www.ProfitsOn.com

US dollar: Will it Increase until Midyear?

2014-02-28T17:01:00.001-05:00

The US will continue to unleash its bond-buying program, while Europe could cut rates again in the coming months. The US dollar might rise against major currencies until the middle of the year.

US: Tightening continues

After January and February, the Fed will proceed with its tapering program for an undefined period of time. The announcement was also confirmed by Mr. Williams, the president of the Federal Reserve of San Francisco, who is considered a dove. Mrs Yellen said, during the Senate Banking Committee hearing on Thursday, the Fed is watching economic data very closely. In reality, the latest economic data has been tepid in the US. As an example, in January, industrial production declined 0.3%, while manufacturing slumped 0.8%. The deterioration is confirmed by the manufacturing survey from the Federal Reserve banks of New York and Philadelphia. Jointly, the two indexes lost almost three points from January to February. Nonetheless, the employment component stayed, strong at 54.2. Perhaps, it is anticipating a rebound in the coming months. In effect, the bad weather might have played a role in the latest economic slowdown Housing starts fell 16% in December and are now at the lowest level since 2011, on the year-to-year basis.

ECB: Cutting or not cutting

The ECB is one of the few central banks that have room to cut interest rates from 0.25% to 0.10%. Will the ECB do it? The economy in Europe is picking up, but there is no evidence of acceleration yet. In February, the composite PMI, which mirrors the GDP, was almost 53 for the eurozone. Manufacturing is beginning to perform well. Good numbers in business expectations and new orders seem to anticipate further growth. Germany is, once more, leading the way. Its economy is close to showing signs of expansion. In the last quarter of 2013, exports rose 2.6% compared to the previous quarter, while business confidence is at the highest of the past 2.5 years. Nevertheless, employment stays subdued in the whole eurozone and inflation is mild. In January, the Eurozone’s inflation rate fell to 0.7%. If the ECB does not act shortly, it will fuel speculations that rates will soon be increased. This should support the value of the euro, contracting exports and putting prices under a renewed downside pressure.

Seasonal and technical components appear to anticipate an increase of the March US dollar index toward 81.60/82.30 by mid-year.

Angelo Airaghi, www.profitson.com

Short-term trading: -- US Dollar Index March contract

2014-01-29T21:38:00.001-05:00

There is a divergence between the daily price and the RSI indicator. Seasonal conditions do not support the US dollar in February. A move below 80.10 could target 79.70 provide the price does not rise above 80.70.

The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed, neither the information presented nor any opinion expressed constitute a solicitation of the purchase or sale of any forex, futures or commodity product. Those individuals acting on this information are responsible for their own actions. Forex, futures and commodity trading may not be suitable for all recipients of this report. The risk of loss in trading forex, futures and options can be substantial. Each investor must consider whether this is a suitable investment. All recommendations are subject to change at any time. Past performance is not a guarantee of future results. Please Note: All performance figures and illustrations were obtained using historical back testing on a computer and are not the results of an actual account. No guarantee is inferred that future performance will be like the results shown. Futures, forex and options trading involve risk. There is a risk of loss in futures, forex and options trading.

US Unemployment Rate: Will It Bottom Out in 2014?

2013-12-21T10:09:00.000-05:00

After the Fed’s decision to start tapering of its asset purchases in January 2014, the U.S. dollar could increase its value against other major currencies. The study of cycles appears to anticipate the unemployment rate bottoming in 2014 or 2015 at the latest.

US economy: Optimism is prevailing

After a few months of rumors, Mr. Bernanke announced last week that the Federal Reserve will begin slowing down its bond purchasing. Starting in January 2014, it will release USD 10 billion at each meeting with the option of passing one month if the economy will not perform accordingly to expectations. Mr. Bernanke sees the risks of Fed anticipations as balanced and seems to be confident about job creation in the United States, despite job expansion being mainly based on manufacturing and construction. In November, 203,000 new positions were created on the top of October’s 200,000. The participation rate rose slightly to 63% from 62.8%, and the unemployment rate is now at 7.0%, the lowest level in five years. Nevertheless, other numbers are not so positive. Service sector employment, for example, fell from 183,000 to 152,000 in November. Hourly wage growth is unchanged at 2.0%, and the average hours worked has been stagnant since the end of 2010.

US dollar: Will it increase in January?

In effect, the study of cycles seems to anticipate that unemployment will bottom sometime in 2014 and then will rise again for the final third wave. Let us see how. Since 1948, the unemployment rate had two bullish cycles (1952/61, 1969/1982). Movements lasted for 9/13 years and extended 63%/67% top/bottom. They all climbed in three distinct waves before collapsing. Declines prior to the final wave lasted for 4 (1975–1979) and 2 (1958–1960) years before prices rose for the final peak. The last waves stretched for 38% and 33%, respectively, and lasted 1 year (1960–1961) and 3 years (1979–1982) from the bottom. How would it fit in today’s scenario? Unemployment began in 2000. It topped in 2003, bottomed in 2007, and completed the second wave in 2009. The movement extended 60% top/bottom. As a result, a third and final wave is still missing.

The Fed expects inflation to increase again, as rates are seen moving higher. Nonetheless, rising interest rates would slow down the housing recovery, despite the inventory of unsold homes lately hitting new lows. Manufacturing is the other good news for the US economy. Production rose from 0.3% in September to 3.6% in November. On the other hand, retail sales climbed 0.7% month-on-month in November, and core retail sales are up 4.70% annualized from 4.0% in July. The US dollar should benefit from the Fed’s decision to taper its bond-purchasing program. The EUR/USD could fall to 1.3550/1.3450 over the coming months.

Angelo Airaghi, www.ProfitsOn.com

The US Dollar Could Decline Further

2013-11-24T10:09:00.003-05:00

During the past weeks, the Federal Reserve has confirmed that employment must improve before changing current monetary policy. Under these conditions, the US dollar should depreciate further and the EUR/USD could challenge 1.38 over the short term.

US: It is not time to give up

The optimism of Mr. Bernanke at the beginning of 2013, which was interpreted as an imminent change in monetary policy, has been replaced by a more realistic view of the state of the US economy. In fact, during the last few months, growth did not show any signs of improvement, while the unemployment rate stayed above the Federal Reserve’s standards. In addition, in October, retail sales numbers were almost unchanged from previous months. Consumer spending declined even though the household saving rate fell from an average of 5.6% of disposable income from 2010 to 2011 to 5.0% in 2012. Wages were not supportive and increased 3.3% in 2012 versus 4.0% from 2010 to 2011.

Unemployment still on target

At the same time, employment does not seem to be gaining momentum. The hiring rate is slow, and the number of people leaving the workforce remains high. Despite cash surpluses, US companies are still prudent in hiring new workers. In effect, demand has remained volatile even after a promising beginning of the year. Furthermore, the national ISM declined three points between October and November, and new orders fell more than 7 points in November 2013. The year-on-year rate of growth of existing home sales declined from 16.4% in July to 5.2% in October. This slump was probably due to the increase of long-term interest rates that started last spring.

World banks are battling deflation

Central banks around the world should keep current accommodative bias unchanged for a few more months. Battling deflation is now a priority. Japan has demonstrated that it is very difficult to recover from a long period of lower prices. The ECB’s recent decision to cut rates follows in that direction. The Fed, on the contrary, holds the same objective, but through the reduction of unemployment. Both continents will pursue their goals until growth rises to or above the long-term average. In the meantime, the US dollar could depreciate further until the US reduces its huge debt and increases interest rates. The EUR/USD could challenge 1.38 short-term and, eventually, 1.46. The long-term bullish cycle for the euro that started in 2000 is still in place. Historically, however, the tendency has shown to uptrend for about 20% from the lows before correcting.

Angelo Airaghi, www.ProfitsOn.com

US Dollar: Rising in November?

2013-10-25T17:26:00.002-04:00

Expectations are mounting over the Fed reducing its Treasury program in December, which could cause the US dollar index to appreciate to 81.60 in the short term. Nonetheless, the Fed should keep its monetary policies unchanged until 2014. As a result, any potential dollar appreciation would be short-lived.

Fed should stay on hold

The latest data confirms that the US economy did not gain momentum after a very slow summer. In September, it created only 148,000 new jobs, which is in line with the July and August average of 151,000, but far below the benchmark of 200,000. Employment in private service-producing industries is underperforming, with only 100,000 new positions added in September. The unemployment rate is now 7.2%, while wage expansion is just above the inflation level at 2.1%. The next few months will be critical. In fact, the data for October could also reflect the government shutdown. As a result, the Federal Reserve should wait until the first six months of next year to decrease the quantity of Treasury purchases. The US dollar index could rise to around 81.60 before December’s decision and then decline toward 78.00 by year’s end.

Unemployment rate could rise in 2014

The nominee for new Fed Chair, Janet Yellen, is considered a dove. As a result, continuity with her predecessor’s monetary policy, whose mandate expires at the end of January 2014, should be her priority. Interest rates will remain low for as long as necessary, and bond purchases might continue in the future as well. However, she is apparently also a pragmatist and will not hesitate to raise rates when conditions are more favorable. When that will happen is not clear yet. Temporary setbacks are still possible, as world economies slowly move out of the recession that started in 2000. For example, the unemployment rate could rise again before finally dropping. Let us see how. Since 1948, the unemployment rate has had two bullish cycles (1952-61, 1969-1982). In both cycles, the unemployment rate climbed in three distinct waves. Declines prior to the final wave lasted four (1975-1979) and two (1958-1960) years.

How would it fit in today’s scenario? Unemployment began in 2000. It peaked in 2003, bottomed out in 2007, and completed the second wave in 2009. The third and final wave is still missing. It could happen in 2014, if history repeats itself.

Angelo Airaghi, www.ProfitsOn.com

U.S. Stocks: Short-Term Rebound?

2013-10-04T21:15:00.000-04:00

The standoff between Republicans and Democrats over “Obamacare” is currently unfolding. However, the real test will occur on October 17, when a decision on whether to raise the debt ceiling will need to be made. In the meantime, U.S. stocks are “oversold” at current levels and could rebound to 1700/1720 in the short term.

Head to head, once more

Pragmatism has not prevailed this time in Washington, D.C. and approximately 800,000 workers will be without a salary until a difficult compromise is reached on Capitol Hill. In the past 40 years, half of U.S. government shutdowns (around 17) have lasted less than three days. Even fewer of those were protracted for more than 20 days. The goal is to find a solution before October 17, when the federal government debt will reach its ceiling. Congress could, as an example, approve the spending bill for the period necessary to prevent additional problems in the near future and simultaneously increase the debt ceiling.

U.S. numbers are improving

In reality, the Federal deficit has fallen from approximately 10% of the Gross Domestic Product (GDP) in 2010 to almost 4% in 2013. The deficit is still $640 billion and needs further improvement; that is why a swift solution in D.C. is essential. As a result, ‘prudence’ is now the buzz word among investors. Stocks have contracted during the entire month of September, while the Treasury yields have again declined. These trends could be reversed in the short term as stocks are appearing oversold at current levels. A rebound of the S&P 500 index to 1700 – 1720 is possible, considering the favorable seasonal conditions for U.S. indexes during October. The U.S. dollar could also briefly rebound, but the trend for this year should stay on the downside. EUR/USD could hit 1.40 by December 2013.

Italy is still under the lens

Europe has avoided another major financial crisis. The Italian government, led by Mr. Letta, was able to confirm its mandate after winning a vote of no confidence last week. Stability will be necessary to continue with the economic reforms initiated by President Monti. Italy wants to keep its deficit below/near 3.0% this year and then gradually improve it after 2014. Considering its huge debt, interest rates must remain low because interest rates payments are around 5% of the GDP. It is a challenging, but not impossible, task and the decisive battle will take place in Roma’s parliament. Unstable governments will not help the economy and rating agencies are watching the Italian political process very closely.

Angelo Airaghi, www.ProfitsOn.com

Federal Reserve: Tampering Now or Tampering Later?

2013-09-15T10:15:00.003-04:00

Five years since the deterioration of the financial crisis, the Federal Reserve is close to modifying its policy. Will it do so in September or in December?

In 2008, with the Lehman Brothers collapse, the Federal Reserve began its so-called Quantitative Easing Programs which consisted of purchasing mortgage agency debt security and Treasury bonds. Now, with more than USD 3,000 billion in bonds on its books, the Fed owns a big chunk of the US public debt. By slowing down its purchases, the Fed will set long-term interest rates higher. By doing anything, it would create more expectation. There are already those who advocate for some rate highs by mid-2014. So, when will be the right time to begin tampering?

Mr. Bernanke has often said the unemployment rate is a key component in the Fed’s monetary policy and an optimal target would be 6.5%. However, job creation remains weak. The unemployment rate has declined to 7.3% from 8.1% one year ago mainly due to the private sector, but the labor participation rate has not improved. As a result, postponing any decision until December, when the new Fed chairman will be elected, seems to be a better option. The Fed could instead promise to extend zero interest rates, maybe lowering the interest rate benchmark, in case it begins tampering in September.

In reality, September or December will not make a huge difference. Financial markets have already discounted part of the Fed’s decision. Since April 2013, ten-year note prices have fallenalmost 9% and the decline might not be over. Since 1982, yields have increased approximately 16% bottom-to-top, after having fallen about 30% top-to-bottom. The longest period of interest rate decline has been five years (1989-1994). The current yield fall began in 2007-8.

Angelo Airaghi, www.ProfitsOn.com

Short-term trading: -- Crude oil Dec. futures contract

2013-09-02T19:41:00.003-04:00

There is a divergence between the daily price and the RSI indicator. Accordingly to the Commitment of Traders report, most futures funds are long this market. A move below 99.80 could target 99.20 provide the price does not rise above 102.

US Stocks: Will September Trigger A Correction?

2013-08-11T09:47:00.001-04:00

Historically, September is the worst month for stocks and the S&P 500 Index could correct to 1660/1640. For now, however, the longer term prospective stays positive in the US.

Still Good Results

The trade balance is improving and could lead to a better than expected Gross Domestic Product in the months ahead. The ISM Non-Manufacturing Index is now at 56, its best number in five years. The ISM Manufacturing hit instead two years high at 55.4. Demand in the auto industry is rising and companies are palling the expand production.

The positive contribution of a balanced housing market is now becoming visible and the deficit is starting to fade. The decline of mortgage bankruptcies will provide the US government with cash inflow, resulting in a smaller budget deficit that will give the Federal Reserve more ability to maneuver. In the fall, Congress will be asked to raise the debt ceiling and approve a new spending bill. This decision could make or break the good performance of the past two years.

The Italian Government Could Break Apart

After almost two years of decline, the economic picture is improving in the Eurozone as well. Confidence is increasing in the peripheral countries, and Germany has shown good numbers during 2013’s second quarter. In the United Kingdom, the CIPS service activity index reached 60.2, its highest level since 2006. Nevertheless, data can change from one month to the next. Recovery in the Eurozone area, which represents almost 50% of all British exports, stays weak. Finally, in China, industrial production spiked this year and investment is positive. The Chinese government appears comfortable with the current growth remaining around 7%, considering it still promotes various economic reforms.

The study of seasonal cycles anticipates a correction of stocks to 1660/1640 in the short-term. A deeper decline could be triggered by political uncertainty in some European countries, a deterioration of the economic growth in China, or a premature change of the US monetary policy. For example, the US unemployment rate could decline further. However, since 1945, the long-term unemployment trend has been characterized by three waves up before unemployment declined for a decade. Unemployment began to rise in 2000; it topped in 2003, bottomed in 2007, and completed the second wave in 2009. A third wave up is still lacking, but potentially could be seen by the end of 2014.

www.ProfitsOn.com

Short-term trading: --DXU3

2013-08-02T15:09:00.002-04:00

There is a divergence between the price and the RSI indicator on the weekly and daily chart. The US dollar tends to be weak in August. Over the short-term, the US dollar index could decline to 80.50 and eventually to 78.00

Short-term trading: ++HGU3

2013-07-23T22:42:00.001-04:00

There is a divergence between the price and the RSI indicator. Copper tends to be strong in August. A move above 325 could target 328 provide the price does not fall to 315.