ProfitsOn

U.S.: The Unemployment Rate Could Rise Again

noreply@blogger.com (ProfitsOn) — Sun, 19 Feb 2012 15:16:58 PST

Unemployment is shrinking and the trend should persist over the coming months. However, longer-term cycles might anticipate a new swing toward the highs.

U.S.: The momentum is still on.

After a dull January, the U.S. economy showed again good results in February, when most of the sectors improved. Retail sales, as an example, remained strong. The manufacturing industry scored the best two-months performance in the past thirteen years. Housing starts recovered near three years high in January, supported by favourable weather conditions, and home builders are starting to hire again. Lastly, initial claims dropped to the lowest level since 2008.

Will it last? Housing prices are bottoming and this is a good start. Nonetheless, mortgage purchase applications are low, while the rate of mortgage delinquencies is still few points above the average. Business investment could contract, due to year-end expiration of tax incentives. On the other hand, consumers might start to re-fill their personal saving accounts, which were depleted during the holidays. Finally, job growth must continue for a few years to have a lasting impact on income. In this regard, a look at the past could be helpful.

Unemployment: One more wave to the top?

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. Within these secular bull-cycles, the unemployment rate topped/bottomed every 4/6 years.

Corrections have instead continued for 1/3 years top/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. It extended for 60% top/bottom. A third and final wave is still lacking. It could be expected between 2012/2013, if history repeats itself.

North/South spread is increasing.

In Europe, negotiations regarding private sector involvement in the debt restructuring are ongoing. At the end, Greece will have to accept an offer it cannot refuse. The country is virtually bankrupt. Pessimism is at the apex. Capitals are leaving Greek banks. However, the coming political elections make any deal transitory. So, Germany, Holland and Finland would prefer to negotiate the bailout only in April, after the new government will take power in Athens. As an alternative, Germany is asking for a technocratic government, Monti’s style, to carry out the austerity measures. It has to be seen, how long the losing streak will continue. The nation will again rely on international financial assistance over the medium-term.

The Southern European states are in recession. European Gross Domestic Product fell 0.3% in Q4 (-1.1% annualized) and is expected to decline in 2012 as well. Portugal has reached the limits with respect to fiscal consolidation. More austerity will be detrimental for growth. A default should be avoided in 2012. The E.U. and the I.M.F. could be forced to provide financial support in 2013. Nevertheless, January P.M.I. picked up nicely. German unemployment rate is at the lowest level in twenty years. Exports stay strong for now. The economic spread between North/South is large and increasing in Europe.

Will China buy European’s debt?

China is watching the European crisis very closely. In fact, with almost euro 7 billion in 2011, Europe is the main target for Chinese investments, ahead of Asia and the United States. During the Summit with the European Union in Beijing on February 14/15, Prime Minister Jiabao has manifested the government’s interest for the EFSF and the ESM. At the end, the Chinese involvement will depend on the risks/reward details of the operation.

Short-term, eur/usd could decline to 1.28 and eventually 1.26. A sell-off is still possible, if the debt crisis will deteriorate. Nonetheless, most of the negative news should already be discounted in current prices. The latest COT report confirms large speculators are massively short eur/usd, while commercial traders have bought it in large quantity since December. A swing above 1.3420 would instead lift the euro to 1.3520.

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. 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

Short term trading: --EUR/USD, Feb. 15/12

noreply@blogger.com (ProfitsOn) — Tue, 14 Feb 2012 18:27:59 PST

--EUR/USD at 1.2920, stop-loss at 1.2990, target at 1.2910 or MOC. Over the short-term, risk aversion could support the U.S. dollar. Technically, the price is leaning against both the upper channel-line and the 100 days moving average. Finally, there is a strong divergence between current price and the RSI indicator on the daily chart. In the past, it has been a strong indicator of trend’s reversal.

Eur/Usd Could Decline Short-Term

noreply@blogger.com (ProfitsOn) — Sun, 12 Feb 2012 18:57:52 PST

(Image by -pottymouth- via Flickr)

The power struggle continues in Washington D.C., while economic conditions are fragile and risk stays high. The E.C.B. could cut rates in March or April, if the new Greece's bailout will not reassure the financial markets. A weak euro is beneficial for Europe. However, any decline should be temporary.

U.S.: Exports have declined slightly.

During election year, politics is at the center of the scene. The Bush tax cut will expire January 1, 2013. Dividend, income and capital tax rates will rise, if an agreement is not found. Republicans are saying tax increase will slow growth, limiting the net effect on the deficit. According to the Congressional Budget Office (CBO), tax revenues will instead rise more than 30% between 2012 and 2014. During the same period, the deficit would be reduced by 68%. At the contrary, the public debt would reach 94% of the G.D.P. in 10 years, according to the CBO, if the Congress votes to extend provisions. Who is right? For sure, the fiscal burden will be heavy in 2013.

Growth stays fragile. The contraction of world economies could limit investment, production and employment. Imports have gained momentum in the last quarter of 2011, while exports have slightly softened. A decline was in the cards. Since 2009, exports have almost doubled the rate of growth registered in the last forty years. They should remain the driving force behind to G.D.P., considering the U.S. dollar is competitive against the majors and wage demands are low. Latest data showed the manufacturing employment diffusion index reached 69.1 in January. It is the second monthly reading in history. In reality, the labor market stays overall soft. The latest decline in the unemployment rate is also related to a weak labor force growth.

Greece saved again. Or was it not?

As protesters were torching Athens, the Greek parliament passed a new austerity bill that will secure Greece a new bailout fund of euro 130 billion. Will it be enough to reassure the financial market? For sure, it will give more time to better prepare all parties involved for the possible bang. Public sector creditors are removing private sector’s exposure to Greece to the PSI (Private Sector Involvement). The European Central Bank is trying to find enough capital to protect those nations exposed to the Greek’s debt.

Another three-year LTRO will be introduced at the end of February. More banks could participate, since the number of collaterals used to gain liquidity has been increased. The E.C.B. is adopting a “wait-and-see” approach on rates. In March/April, they could be cut again by 25/50 basis points, if the debt crisis will deteriorate

A weaker euro would be good for Europe.

Greece does not have any more room for improvement. The economy is contracting for the fourth consecutive year and the population is fed-up with the measures. Clearly, austerity is not enough. Why? Fiscal revenues drop and more austerity is needed, which contracts demand. Growth must pick up to end the vicious cycle. Exports would help, but the currency must fall. European rates should be lower than American rates. It will eventually occur. For now, the longer-term cycle stays bullish for eur/usd.

Over the short-term, nonetheless, risk aversion could support the dollar. Euro/usd could correct to 1.2950, 1.2840 and eventually 1.26. Technically, the price is leaning against both the upper channel-line and the 100 days moving average. Finally, there is a strong divergence between current price and the RSI indicator on the daily/weekly chart. In the past, it has been a strong indicator of trend’s reversal.

Angelo Airaghi, www.ProfitsOn.com

EUR/USD Meets Key Resistance

noreply@blogger.com (ProfitsOn) — Sun, 05 Feb 2012 15:20:01 PST

The string of better-than-expected reports continues in the United States. At the contrary, the E.U. Summit did not provide any guidance on the main issues. Greece remains on the brink of collapsing and the euro/usd could eventually correct.

The U.S. is pulling. Will it last?

Job creation is gaining momentum in the U.S. Non-farm payrolls rose by 243,000 in January from 203,000 in December. Gains include manufacturing (+50,000), construction (+21,000) and private services (+176,000). The unemployment rate fell instead to 8.3% from 8.5%. Business hiring helped, along with the decline of layoffs among state and local governments. Solid profit gains inspired companies to invest more in machinery and equipment. The ISM composite index improved for the third month in a row to 54.1. New orders moved-up to 57.6. The car industry scored good numbers as well.

Time will tell, if this is a sustainable recovery or just a move toward pre-recessionary highs, before declining to the lows again. The long-term bearish cycle that started in 2000 is still on-track and might last few more years. However, the line of the next economic cycle might have been drawn.

Ultra-low interest rate levels are supporting the economy and reducing debts for household, government and businesses. Additional cash-flow should inspire more balance sheet restructuring and maybe increase spending. The other side of the story is inflation. It should be just a matter of time, before it will increase once more.

Europe: One step at a time. Is it enough?

The E.C.B. has extended a crucial financial lifeline to European banking institutions. Nonetheless, any delays in implementing the fiscal and structural reforms would increase downside risk and limit growth. Last week’s Summit did not provide any clear line regarding the fiscal and/or political union. 25 European nations agreed on a few measures such as debt breaks and legal actions against countries that fail to comply. Any decision regarding a larger ESM and EFSF was postponed to March.

Confidence remains weak. Unemployment among the young population is a challenge and increases the possibility of social tensions. In Spain and Greece, it reaches 50%, while in France and in Great Britain is above 20%. Germany, Austria and Holland have instead low unemployment rates. In effect, economic growth is lacking.

In December, bank lending to private sector fell euro 74 billion, the largest monthly drop in history. Household credit plummeted euro 8 billion, while loans to non-financial corporation declined euro 37 billion. Banks are making more difficult to borrow money, despite the large injection of liquidity provided by the E.C.B last year. The Euro/usd is at a crucial level. It corresponds to the neckline of recent consolidation. A breakout failure could take the price to 1.28 and eventually 1.26. The Greece’s saga might be moving toward the end. A sell-off is still possible, although most of the bad news should already be discounted in current prices. According to the C.O.T. report for the week ending February 03/12, commercial and speculative positions remain near historical high levels.

Angelo Airaghi, www.ProfitsOn.com

The U.S. dollar might fall and Gold rise?

noreply@blogger.com (ProfitsOn) — Sun, 29 Jan 2012 18:54:24 PST

Image By Ken_Mayer via Flickr

The Fed could keep Fed fund rates low until 2014 and does not dismiss another series of quantitative easing (QE3). The policy would possibly penalize the U.S. dollar and maybe support gold. The future of Europe is instead linked to three main events.

We are not out of the slump yet.

Last week, the U.S. Federal Reserve indicated the cycle of ultra-low interest rates should go on few more years. In fact, despite recent improvements, the Fed is concerned about the health of the economy in the U.S. and in Europe. As a result, operation Twist remains in full force and QE3 is a possibility, if unemployment fails to decline to acceptable levels. On average, participants of the FOCM meeting see rates low until 2014 and to increase at 4.25% in the longer run. The inflation target is set at 2.0% year-on-year, while growth is forecasted at 2.2%-2.7% in 2012. How will it affect the market? Over the longer-run, Fed’s decision would penalize the U.S. dollar and eventually support gold. The secular cycle in commodity prices that started in 2012 is still on. It might end in 2014/2015, if history repeats itself. However, February has been negative for gold 80% of the time. On the other hand, the euro/usd is targeting the important resistance line at 1.3240, which corresponds to the neckline of recent head and shoulder’s consolidation. A breakout would support the price to 1.34. A breakout failure would quickly take the price to 1.26.

Although problems remain actual (a huge deficit and high unemployment rate), investors and consumers have become more positive in the past months. G.D.P. rose 2.8% (estimate) in the fourth quarter of 2011. A big support came from household’s spending on durable goods (+14.8%) and business spending (+1.7%). Demand from the government kept instead falling for the fifth quarter in a row. It is a fact, households relied heavily on credit cards and some gains were based on favourable seasonal components. In addition, the weak recovery will be in jeopardy, if Europe fails to continue with the reforms. Nonetheless, just 5% of U.S. exports are directed to more fragile European economies. About a fifth of the S&P 500 companies reported selling 25% of their products to Europe, mainly to the Netherlands and the U.K. A deterioration of the debt crisis and a decline of the euro will affect import demand.

E.U leaders gather in Brussels.

As Greece is still negotiating terms of debt restructuring, other two nations are under the lens: France and Italy. If the French elections were in January, the majority of French citizens will support the Socialist candidate Francois Hollande. Sarkozy will finish only second. The rightist National Front of Mrs. Le Pen is third by a tiny margin. The populist, anti-euro message is gaining consensus and will levitate in the coming months. Will Sarkozy change its political rhetoric and move away from Germany in order to be re-elected?

Weak growth and high public debt are instead the main challenges for Italy. Why? High debt increases interest rates and reduces the opportunities for growth. On January 20, the Italian government has adopted few measures to open up the service sector. For example, a number of shops and licenses for many professional services will be increased. Banks are asked to reduce fees. Finally, the government will try to modernize to the employment market. Will it work? Unfortunately, all these initiatives will produce results only in the longer-run. For now, confidence is low and unions are already protesting in the streets of Rome. The temptation to ride the wave of malcontent and to reject Monti initiatives is increasing among some political parties.

Italy cannot win the battle alone. This week, E.U. leaders will meet in Brussels and might discuss what President Draghi called:”Fiscal compact for the euro zone”. It will include transforming the E.M.U into something similar to a fiscal union and finally implementing stabilization mechanisms such as the EFSF/ESM. The euro zone will not survive in its current form and the time for change is now.

Angelo Airaghi, www.ProfitsOn.com

Short term trading: ++GBP/USD, Jan. 24/12

noreply@blogger.com (ProfitsOn) — Tue, 24 Jan 2012 08:12:18 PST

++GBP/USD at 1.5618, stop-loss at 1.5550, target at 1.5628 or MOC. The pound is above the 50 days MA. There is a divergence between the price and the RSI indicator.

France and Germany Alliance is at Risk.

noreply@blogger.com (ProfitsOn) — Sun, 22 Jan 2012 07:28:15 PST

(Picture by aeneastudio via Flickr)

Mr. Sarkozy is lagging behind in the pools and might change his tactics to be re-elected. The populist, anti-euro message is gaining consensus and rightist National Front of Mrs. Le Pen could be the big surprise in France elections. What will the euro/usd do?

Sarkozy changing retorica?

Just few months ago, after the U.S. lost the triple A status, the French prime minister was quite sure under his leadership France will not lose its “national treasure”, the AAA.

It was a tactical mistake, considering the coming elections. At that time, the vast majority of French citizens did not know what the triple A meant for the country. Well, they do it now. France rating was slashed to AA+ from AAA and other candidates are blaming the government for the debacle.

Things are not going well for Mr. Sarkozy. If elections were due on January 22, 29% of respondents to an Ipsos poll for “France televisions”, “Radio France” and “Le Monde” said will support the Socialist candidate Francois Hollande. Sarkozy will finish only second with 23%. The rightist National Front of Mrs. Le Pen is third by a tiny margin.

The populist, anti-euro message is gaining consensus and will levitate in the coming months. In 2002, Mr. Le Pen (the founder of the party and father of the actual candidate) lost against Chirac only in the last runoff, after gaining almost 18% in the first-round vote.

National pride is broken.

Like today, the euro was declining and the economy was moving into recession. After ten years, however, more angry citizens could vote for Mrs. Le Pen and there is a chance she could fight until the end. It would be the first far-right government after WW2 and would create a dangerous precedent in Europe.

National pride is broken and needs to be restored. Mr. Sarkozy might change tactics, in order to be re-elected in April/May vote. How? The alliance between France and Germany could be transformed into a deadly dualism. Mr. Sarkozy might start to take more unilateral initiatives like the introduction of a tax on financial transactions.

Despite a possible rebound to 1.30/1.32, the euro should remain weak for the first part of the year. Greece could shortly collapse and the French elections are around the corner. Then, the attention will be focused to the U.S. elections and maybe the euro could start to design a bottom again.

Angelo Airaghi, www.ProfitsOn.com

Euro/Usd: Sinking or Bouncing?

noreply@blogger.com (ProfitsOn) — Thu, 19 Jan 2012 06:16:02 PST

(Picture by Cool Guyz via Flickr)

The euro zone rating was downgraded. Greece might default in the first part of the year. The European crisis is entering into its darkest phase. What will happen to the dollar?

Euro zone: is it the calm before the storm?

On Friday, nine euro zone ratings were lowered by the Standard and Poor’s rating agency. The cuts include top economic players like France and Italy. German’s rating was instead left unchanged. Apparently, the agency does not believe the efforts taken so far are enough to create growth. What could happen now? Unity is at risk. Consumer confidence will sink. Recession should deepen. Reforms could be delayed. The European political uncertainty will be elevated in the first part of this year. Bond yields could spike again, despite recent correction. The central bank can only provide liquidity. Solvency is the big issue. The European Banking Authority (EBA) has calculated 65 banks would need about euro 75 billion by mid 2012. The reality could be worse considering banks exposure to the southern states.

Last week, the European Central Bank left rates unchanged at 1.00%. The decision was unanimous. President Draghi said the E.C.B. will cut rates again, if the economic conditions deteriorate. So, another round of cuts is possible in March and/or April. Why? Greece might default by the first six months of 2012. Private creditors are reluctant to voluntarily reduce Greece’s debt. The deficit is huge and increasing. Reforms are on standby. On Monday, the troika (IMF, E.U, and E.C.B.) will again be in Athens to size Greece’s progress. The bailout package, which was agreed last year, will not start without a real turnaround.

The U.S. economy is still healing.

In this magmatic scenario, the U.S. is holding up quite well. In December, unemployment declined to 8.5%, while payroll employment rose 200,000, from a three-month average of 143,000. The G.D.P. is expected to growth 3.5% in the fourth quarter of 2011. However, results might be transitory and can be reversed in the first three months of this year. As an example, the employment of couriers and messengers rose 42,000 in December compared to a monthly trend of 1,000. Employment in construction rose instead 17,000, versus an average of 3,000 per months over the previous three months. Favourable seasonal conditions played a role in November and December numbers.

During the holidays, consumers relied on credit again. As a result, the personal saving rate fell to 3.5% from 5.0%. At the contrary, credit rose 0.8% in November, the highest level in any single months in more than ten years. Will it last? Deleveraging is still unfolding and incertitude about the future is high. Retail sales rose a tiny 01% in December. Actually, core sales declined for the first time since 2010. In the first week of 2012, initial claims moved-up to 399,000. The country is still healing and has the capacity to face just a mild European recession. Let us hope, it will only be that. The European’s clock is a few minutes away from midnight again.

Euro/USD: Reaching a key support line.

The euro/usd should be weak for the first part of 2012. The next targets could be 1.26, 1.24 and eventually 1.20. Nonetheless, in February, the euro could temporarily rebound to 1.29/1.32. Why? Markets are discounting a rate cut of 25 basis points to 0.85%, which is above U.S. levels. Technically, prices are quickly approaching the lower channel-line at 1.26. Finally, some sentiment indicators are signalling oversold conditions for the euro/usd.

According to the Commitment of Traders report, published weekly by the Commodity Futures Trading Commission, large speculators (mainly futures funds) are extremely short the euro/usd. At the contrary, commercial traders (large financial institutions) have massively bought the euro since December.

Angelo Airaghi, www.ProfitsOn.com

Short term trading: --EUR/USD, Jan. 11/12

noreply@blogger.com (ProfitsOn) — Tue, 10 Jan 2012 15:05:21 PST

--EUR/USD at 1.2742, stop-loss at 1.2790, target at 1.2732 or MOC. The trend is still supporting the U.S. dollar. The euro is leaning on the long term trendline. There is a divergence between the RSI indicator and the price on the daily chart.

USD/CAD Could Rise to 1.08

noreply@blogger.com (ProfitsOn) — Thu, 19 Jan 2012 06:17:57 PST

(Picture by palindrome6996 via Flickr)

The U.S. dollar should increase further against the Canadian dollar supported by favourable economic and seasonal conditions.

Canada is losing competitiveness?

As the economic growth is fading and commodities are receding from the highs, the U.S. dollar maintains a competitive advantage over the Canadian dollar, whose destiny is linked to the price of raw materials. In 2012, the greenback can rise to 1.05/1.08 against the loonie.

Let us see why.

The economic conditions have improved in the southern part of the border. Unemployment has declined to 8.50%, household spending has increased. Hiring in the construction business moved up by 17,000 units for the first time in years. In reality, government positions are still under pressure, but the heat has faded slightly.

In Canada, at the contrary, employment fell for the first time since 2009, while the jobless-rate rose to 7.50%. Overall spending is still healthy. Auto sales rose 1.8% last year and holiday deals were encouraging. Finally, preliminary home sales might be up 4% from 2010. However, consumer confidence has declined to the lowest level in 16 years. Retail sales rose 4%, while they jumped 8% in the United States.

The economic growth is contracting.

Why? Simply, the economy might not be trending anymore. In 2011, the savings rate fell below 4% from 4.8%. Companies are prudent about hiring, after many months of negative news about the economic conditions in the U.S., Europe and China. In December, employment added 17,500 positions, but most of the gains were registered in the part-time or self-employment jobs. In the U.S., the manufacturing industry has played an important role in job gains. Labour cost has decreased. Union influence is weak. As a result, productivity has surged. In Canada, at the contrary, the struggle between unions and private companies over wages and benefits is just beginning. Faster growth is at risk. In 2012, the Gross Domestic Product (G.D.P.) is expected to increase around 2.0% compared to 2.5% in the U.S.

Seasonal and technical conditions support a rise of the U.S. dollar as well. Why? The first two months of the year are negative for the Canadian dollar. Then, the price is once again above the 50 days MA. Last, the trend is supported by a strong divergence between the RSI and the price on the weekly chart. Over the longer-term, nonetheless, a new increase of the commodity prices should take the loonie near parity again.

Angelo Airaghi, www.Profitson.com

Short term trading: ++GBP/USD, Jan. 04/12

noreply@blogger.com (ProfitsOn) — Tue, 03 Jan 2012 15:26:57 PST

++GBP/USD at 1.5755, stop-loss at 1.5690, target at 1.5765 or MOC. The pound is above the 50 days MA. There is a divergence between the price and the RSI indictor.

Europe is Preparing for The Worst

noreply@blogger.com (ProfitsOn) — Mon, 26 Dec 2011 14:00:55 PST

(Picture By SqueakyMarmot)

The first part of the year is favourable to the U.S. dollar. Stocks could instead fall.

E.U. banks are short of credibility.

On December 21, the E.C.B. introduced a three-year term loan for 523 banks. The amount involved will be euro 489 billion at 1% rate, around euro 240 billion net. The Long
Term Refinancing Operation (LTRO), anticipated on December 8 by President Mario Draghi, has the objective of supporting bank lending to small/medium term organizations and helping financial institutions refinance at medium-term maturities.

Will it work? Liquidity is desperately sought and will be challenging to expand lending in the mid of a recession. It would be more probable for banks to use the LTRO for refinancing books at low cost and improve the cash flow. At the contrary, government bond purchase should be limited. After the announcement, the Italian bond yields were again above 7% last week.

In reality, Europe is preparing for the worst. In an interview to the Financial Times, President Draghi warned about the consequences of the euro zone breaking apart. He expects each nation to follow up with the austerity measures and to finally make the European Financial Stability Facility (EFSF) operational. How the markets will react? Trust stays low. Money will not be enough in case of Italy defaulting. The eur/usd should decline to 1.28, 1.24 and eventually 1.20. Historically, the first part of the year is favourable to the U.S. dollar.

U.S.: One tiny step after the other.

After intense negotiations, the U.S. congress has passed the law to extend the payroll tax cut until February 2012. Will two months be enough to finally reduce the unemployment rate? Despite this year small gains, the road stays tortuous. Hiring has to accelerate for keeping momentum up. The three months moving average rose from 67,000 in July to 143,000 in November. Weekly initial claims fell instead to 364,000 during the week ending December 17, the lowest level since 2008. Nevertheless, monthly gains are too thin. The U.S. population is growing 140,000-150,000 units a month. So, more jobs will be needed in the future to fit the discouraged people re-entering into the work force.

Further household deleveraging and an unclear fiscal policy should weight on growth next year as well. Government jobs might still be under pressure. Investment gains could shrink. A decline of the S&P 500 index to 1050/950 is still in the cards, unless prices rise above 1360. However, demand for homes could improve, since housing prices appear to be designing a bottom at current levels. At current monthly rates, the inventory of homes for sale has declined to seven months compared to the ten months registered in July 2010. Nonfinancial companies have a good amount of cash to invest in non-residential projects. In the past, housing prices rose to new highs within 3/5 years after reaching the bottom.

Angelo Airaghi, www.ProfitsOn.com

The Euro Will Plunge, Stocks Could Follow

noreply@blogger.com (ProfitsOn) — Tue, 20 Dec 2011 17:56:46 PST

Do not get fooled by the end-of-year rally. In January, markets might fall again. Here is why.

The euro/usd has clearly moved below the neckline of the past 12 months at 1.33. It will eventually target the lower channel line at 1.28/1.26. January is one of the worst months of the year for the currency. Finally, the short-medium trend is bearish, considering the implication of the European crisis. Markets are anticipating the scenario of the next 3/6 months.

What could it be?

Well, here is my guess. Greece could default and Europe might reach the apex of this cycle. In effect, the C.O.T. (Commitment of Traders report) for the euro currency, published by the Commodity Futures Trading Commission, is already showing extreme oversold conditions for both speculators and small investors trading the euro/usd at the C.M.E.

It happened last in May 2010. The market fell for other few months, before bottoming out. A decline of the euro will plunge stock indexes as well. Lately, the two markets are correlated. What will be the targets of the S&P 500? First, it could reach 1150, then 1100 and eventually 1000.

Angelo Airaghi, www.ProfitsOn.com

Short term trading: --EUR/USD, Dec. 19/12

noreply@blogger.com (ProfitsOn) — Sun, 18 Dec 2011 17:56:42 PST

--EUR/USD at 1.2967, stop-loss at 1.3040, target at 1.2958 or MOC. The trend is bearish for the euro. The U.S. dollar might try to break the consolidation.

U.S. Housing Prices Bottoming

noreply@blogger.com (ProfitsOn) — Sun, 18 Dec 2011 14:59:33 PST

The U.S. economy is moderately increasing, while the housing market is designing a bottom. Europe, at the contrary, is already in recession. The U.S. dollar should rise in January as well.

U.S. Dollar rising in January.

The positive economic momentum is unfolding in the U.S and could expand into the first part of 2012. However, it would be challenging for the U.S. to hold the fort alone. Domestic consumption, 70% of the G.D.P., should be milder. Consumer and business confidence have improved, but still remain below pre-recessionary levels. Employment grew in most of the sectors, excluding finance, construction, real estate and government. Since February, businesses employed more than 3,000,000 new people, while the deleveraging areas lost about 600,000 jobs. Rates will remain on hold for most of 2012, but the Federal Reserve might introduce a new set of quantitative easing. The dollar should increase further over the next months. Against the euro, the next targets could be 1.28, 1.22 and 1.16.

Since the beginning of 2011, household wealth, which was behind the recovery of the past two years, has deteriorated. Wages have been sinking. Thankfully, inflation moved away from the high. It should continue to help consumers for the most part of 2012, as commodities will temporarily retrace part of the gains. Mortgage rates are softening. In effect, housing prices appear to be designing a bottom at current levels. Since 1969, prices topped roughly every 9 years (1969, 1981, 1990, 1999, and 2007) and bottomed every 10 years (1971, 1982, 1992, and 2002). From top to bottom, declines lasted for about 2 years (69/71, 81/83, 90/92, 07/09. New highs were then reached after 3/5 years from the bottom. The current decline started in 2007.

The sovereign debt crisis could escalate in 2012.

According to U.B.S economists, the euro zone economy should contract 0.7% next year, compared to this year expected growth of 1.6%. In effect, the euro summit's agreement will take time to be formalized. Reforms are welcomed by the financial community, but are not appreciated by the electorate. Mario Monti, the new Italian prime minister, said Europe’s future is in Italy hands. His government has just begun a new series of reforms, which will include a large tax increase for the majority of the population. Malcontent is already mounting. Faith in Europe has never been so thin. Greece could default within the first six months of next year. According the I.M.F. mission chief in Greece Poul Thompsen, Greece does not have any more room for tax collection. So, more public companies could be out of business. The I.M.F. expects Greece’s G.D.P. to fade by 6% in 2011 and by 3% in 2012. The government has a hard time passing the reforms. Citizens are exhausted of two years of austerity measures.

In the mean time, the E.C.B confirmed that refinancing operations with Spanish banks have increased to the highest level since September 2010. The new government of Mr. Rajoy has promised to restructure the banking system, focusing mainly on mortgage loans. The measures have already been criticised by the I.M.F, which would prefer banks to support the economy instead of reducing the balance sheet. The sovereign debt crisis has not reached its climax yet. A deeper decline of the euro and stocks are in the cards. What could happen next? A new increase of commodity prices, supported by the Chinese economic growth, should penalize the dollar and support stocks toward the high of current bearish cycle. The euro might test the top reached in 2007, before capitulating. It happened in 1980 and 1995.

The euro zone breaking into pieces will lead world economies into different, unpredictable, scenarios.

Angelo Airaghi, www.ProfitsOn.com

E.U.: A Turning Point or a Failure?

noreply@blogger.com (ProfitsOn) — Thu, 19 Jan 2012 06:21:07 PST

(Picture by ToastyKen)

There is a light at the end of the tunnel. However, trust must be rebuilt. The dollar could rise and stocks fall. The euro crisis has not reached its climax yet.

E.U.: A turning point or a failure?

On Thursday and Friday, 27 European leaders gathered in Brussels (Belgium) for their last meeting of the year. A special attention was given to the German/French initiative for a revised structure of Europe. Some investors expected important decisions to be taken at the end of the week. In fact, amendments of some treaties require the approval of all 27 governments. Others saw the summit as a drop in the sea of the huge European straggle. Basically, it was considered a waste of time.

Despite some tension between Britain and the rest of the team, the result fell in between the two extremes. Those waiting for Europe to become a fiscal union might have been disappointed. However, for the first time in two years, important steps have been moved in the right direction of a fiscal treaty. The decision was almost unanimous. Great Britain decided to play solo, although heavily relying on Brussels subsidies for its farmers.

Trust must be rebuilt.

Here is a synthesis of the summit. First, structural deficits cannot be larger than 0.5% of the G.D.P. Countries that overcome the 3% of the G.D.P deficit limit will be penalized. Then, the EFSF will be effective as soon as possible. Finally, the ESM rescue mechanisms will be a reality by July 2012 without a banking license. Resources up to euro 200 billion will be provided to the I.M.F. In reality, some questions remain unanswered. Who will give the money to the I.M.F.? Trust between Europe and the financial markets must be rebuilt. The European crisis has not reached its apex yet.

Credibility is the key. The euro could decline to 1.28 and eventually 1.22 by the first part of 2012. Why? The continent is already in recession. The ratings of some European countries, including France (probably not Germany), could be downgraded. Greece might default in the first six months of 2012. Lastly, the E.C.B. is providing liquidity to its members. Nonetheless, it has stopped buying government debt (for now). With rates at 1.00%, quantitative easing could be an option next year. Eurobonds might be introduced, but only after reforms will be in place.

The U.S. is holding, but for how long?

Despite the current advantage, the U.S. dollar could capitulate under the huge deficit in the longer-term. Solutions are difficult to take in Washington D.C. Republicans and democrats, like two islands, are moving away from each other. Workers are at risk of receiving about $ 800 less next year, if the Congress does not extend the U.S. payroll tax cut. The economy is moderately growing, while inflation has topped for now. Nevertheless, improvements are expected, especially in the labour market.

Next year, exports could be milder. China’s economy will possibly stay below 8%. The Chinese government was able to surf world crises very well. The economy grew more than 7% during the Asian meltdown of 1998 and the crush of 2009. What will happen in 2012 with housing fading and Europe going into recession? Bank reserve limits have been eased lately. Why? Inflation is declining, but remains above 4.00%. A hard landing in China will have serious consequences elsewhere.

Angelo Airaghi, www.ProfitsOn.com

Stocks will decline, while the U.S. dollar could rise after the euro summit.

noreply@blogger.com (ProfitsOn) — Thu, 19 Jan 2012 06:22:37 PST

(Picture by Eva_elfje)

However, movements could be on hold until January.

On Thursday and Friday, 27 European leaders will meet in Brussels (Belgium) for their last meeting of the year. Various themes will be discussed, but a special attention will be given to the German/French initiative for a revised structure of Europe. What will happen? Hopes are for important decisions to be taken at the end of this week. In fact, amendments of some treaties require the approval of all 27 governments. Will this be the case? Although any decisions will take time to be implemented, three solutions are possible. The first will generate a whole new fiscal organization for Europe. The second will be an improvement of current situation. The third option will leave everything like it is now.

Which road will Europe take? The first decision might be too radical, since few European states still do not grasp the difficulty of the moment. The last one will be too mild. The German/French layout could be followed this time. Here is a synthesis. Mrs. Merkel and Mr. Sarkozy have already discussed it in Paris this week.

The E.C.B is asked to take a more important role, while new steps would be designed for the creation of a fiscal union. Finally, governments could be subject to automatic sanctions, if fiscal policies will not be followed. What will be the results? Any decision taken toward a fiscal union is welcome. Nonetheless, at this moment, it will not be enough to avoid the euro to decline to new lows. Seasonally, December has been a good month for the euro and stocks. The first part of the year has been mostly bearish instead. The next target could be 1.28 and eventually 1.22. Nonetheless, the currency could rise again against the U.S. dollar in the last part of 2012 or in the first part of 2013.

www.ProfitsOn.com

A New Asset For Europe?

noreply@blogger.com (ProfitsOn) — Thu, 19 Jan 2012 06:24:07 PST

Do you hope the euro zone will break apart? You should think twice.

U.S. dollar: Stronger short term, weaker long term.

World markets are experiencing an apparent calmness. Last week’s concentring intervention by six central banks has provided some relief to the European straggle. Seasonally, December has been a strong month for stocks and for the euro. World economies are nevertheless contracting and will be difficult for the U.S. to hold the fort alone. Next year, consumer spending should stay mild, while unemployment could be near the high. The Federal Reserve will keep rates unchanged for 2012 and for the first part of 2013. What will happen to the U.S. dollar? It should increase over the short/medium term. Nonetheless, the longer-term trend picture is bearish for the greenback. Apart from cyclical reasons, fundamental components seem to anticipate a weaker currency in the years to come. Why? The deficit is huge and increasing. Cohesion is weak in Washington D.C. and a fiscal stimulus package might be impossible to be introduced. The last example is the super committee breaking apart over a budget deal. So, a new set of quant easing is possible. It will be negative for the dollar. Demand of home currency by European banks should instead support the euro.

Hope is mounting in Europe.

For now, risk is on Europe and will stay there for the most part of 2012. Against the U.S. dollar, a decline to 1.28/1.22 is possible. The E.C.B. should cut rates to 1.00 on Thursday or in January, at the latest. Reforms are necessary, but it would be challenging to resolve the European debt burden without a well structured financial system. Germany is finally demanding a fiscal union. Europe has a great opportunity. There are no other citizens that share similar boundaries as the Europeans. The level of education is high. The work force is powerful. Nonetheless, Europe must finally become a nation, if it wants to survive. Hope are mounting that important decisions will be taken this week, when 27 European states will meet. In reality, a new treaty will require time to be implemented. Various challenges still need to be overcome. French banks, as an example, are under pressure and might ask for government assistance. Bond premiums are levitating, while economic conditions are deteriorating. So, France’s rating could be downgraded. When? Hopefully, it would happen after April’s political elections. Otherwise, Mr. Sarkozy, who advocates fiscal responsibility, will be tempted to give voice to the dissatisfaction of the Mediterranean states in order to be re-elected. Moving away from Germany would mark the end of the euro zone.

There are an increasing number of supporters hoping for Europe to break apart. They consider it useful for their own economy. The falling of a top economic power will be beneficial for the world? At the contrary, the breakdown of the euro zone might have unpredictable consequences. Reactionary forces are just waiting in the shadow for the right moment to ride the beast of extremisms again. They will feed the electorate malcontent with the same unreachable promises. The never-ending cycle of promising/blaming will begin. Where will it lead? Like it or not, America, Europe and Asia have to sail this turbulent sea together. The mess began first in the U.S. with the toxic mortgages and was exported to every corner of the world. It is only a matter of time before the illness will complete the cycle and return to where it all started. It is better to be prepared and work tight for a solution.

Angelo Airaghi, www.ProfitsOn.com

Useful links:

http://brucekrasting.blogspot.com/2011/12/unlucky-13.html

Monthly Trade, December 2011, --USD/CAD

noreply@blogger.com (ProfitsOn) — Fri, 02 Dec 2011 09:58:51 PST

The U.S. dollar meeting resistance.

The USD/CAD is bouncing against the upper Bollinger band. A move below 1.0075 could target 1.00, 0.99. Seasonal conditions support a decline of the U.S. dollar in December.

Short Term Trading: ++USD/YEN on Friday, December 02, 2011

noreply@blogger.com (ProfitsOn) — Sat, 17 Dec 2011 20:35:35 PST

++USD/YEN at 78.40, stop-loss at 77.80, target at 78.50 or MOC. A move above consolidation could target resistance.

Short Term Trading: --EUR/USD on Wednesday, November 30, 2011

noreply@blogger.com (ProfitsOn) — Sat, 17 Dec 2011 20:35:35 PST

--EUR/USD at 1.3265, stop-loss at 1.3324, target at 1.3255 or MOC. The trend is still below the 50 days MA, as well as the trading momentum. There is a divergence between price and the RSI. The U.S. dollar could challenge the support again.

2012: The World Falling Apart?

noreply@blogger.com (ProfitsOn) — Thu, 19 Jan 2012 06:30:36 PST

Pic by NASA Goddard Photo and Video

Financial markets are being hammered by the speculation, as the world economy is entering into recession. The dollar should gain more ground against majors, while stocks might be targeting new lows.

A deep contraction is possible.

Here is the good news: The world will survive. Nonetheless, investor patience is going to be stretched to the extreme in 2012. Why? The European crisis is intensifying, while the U.S. is focusing on the coming elections. China dynamism is fading. What will be the results? Stocks and commodities will be hunting for the lows and the U.S. dollar could play the safe heaven role. The correction might last for the most part of the year.

Then, maybe in 2013, markets should resume their long term cycles. Commodity prices might head for the highs again. Gold could be the star. The U.S. dollar would possibly decline against the majors. In fact, the longer-term cycle, which began in 2002, is still bearish for the greenback. It might end along with a top in commodity prices. When will it happen? In the past 80 years, the C.R.B. index had 2 bull trends. They lasted 13/12 years (1938/1951, 1968/1980).

Europe: A few minutes away from midnight.

Of course, the scenario does not contemplate the Euro-zone breaking into pieces. The outcome is possible, although is not probable at this moment. The European sovereign debt crisis is mostly a credibility problem and the faith in Europe is equal to zero right now. The German debt agency sold only euro 3.64 billion of its new 10-year bund instead of the expected euro 6 billion. The agency kept the difference hoping to place it in the future. However, incisive reforms are needed, since the big bang is approaching. Greece’s default is expected by the first part of 2012. Other nations could prefer to leave the Euro-zone.

Germany is finally calling for a greater fiscal and political structure for Europe. The process, if accepted, will require time to be implemented. The E.F.S.F bailout fund, as an example, has not been approved yet. Europe remains a giant in chain. Nevertheless, austerity and fiscal measures are mandatory. So, growth should be mild. The euro could decline to 1.28, 1.22 and eventually 1.16. The currency has shown the tendency to top/ bottom every two years. It bottomed lastly in 2010.

U.S.: ratings downgrade in 2012?

Recessionary winds are blowing. The U.S. economy has been resilient thus far. How long will it last? Manufacturing would soon succumb to the world’s slowdown. Unemployment could increase again. In effect, solutions are sitting on a table in Washington D.C., but politicians are too concentrated in winning the coming elections. As a result, Congress might not be able to extend both the payroll tax cut and the unemployment benefits, after the Joint Select Committee of Deficit Reduction failed to reach a compromise last week. What could happen now?

The Congress might change the law in order to avoid about $ 1.2 trillion to go on sequestration. The operation will put the U.S. at risk of ratings downgrade in 2012. Consumer and business confidence will be affected. The S&P 500 index could decline to 1100 and possibly to 1040/900. The bearish cycle that started in 2000 is unfolding. It should last for 13/17 years top to bottom. In the past 30 years, stocks have bottomed within 3/10 months, after bonds reached the long-term upper line. Highs were hit last in October.

Angelo Airaghi, www.ProfitsOn.com

Short Term Trading: --EUR/USD on Tuesday, November 22, 2011

noreply@blogger.com (ProfitsOn) — Sat, 17 Dec 2011 20:35:35 PST

--EUR/USD at 1.3424, stop-loss at 1.3524, target at 1.3415 or MOC. The trend is below the 50 days MA. The momentum is down. The U.S. dollar could challenge support.

Will stocks plunge again?

noreply@blogger.com (ProfitsOn) — Thu, 19 Jan 2012 06:31:30 PST

(Pic by NASA Goddard Photo and Video)

Despite a brighter economic picture in the U.S., financial markets are still at risk of collapsing under the European sovereign debt crisis. Stocks are at crucial support lines, while the U.S. dollar could appreciate further against the European currency.

Buy the America’s momentum or sell Europe’s incertitude? Traders remain caution. Good timing is important to ride the wave. Long-term cyclical studies anticipate further losses for the stock indexes, while seasonal components support a rally in November and in December. In effect, the U.S. economy has grown 2.5% in the third quarter of 2011. Consumer spending and business investment stay healthy, while exports are positive, due to a weaker dollar. Foreclosure numbers fell to the lowest levels since 2008. Finally, inflation is softening, along with the decline of gasoline prices. However, good news about the U.S. economy is undermined by the incertitude of the European sovereign’s debt. In Italy, Mario Monti has gained the majority of the parliament. A series of painful and unpopular austerity measures have to be approved. Monti’s large consensus could quickly shrink, along with the electorate approval, while Berlusconi is waiting for the right moment to get back on track again.

Sell Europe. For how long?

In reality, after Greece and Italy, another country will soon be under tight scrutiny. On Sunday, the Popular party of Mr. Rajoy has won the Spanish political elections. Like elsewhere in Europe, austerity and reforms are the keywords. The financial world is watching. For the first time in fourteen years, Spanish bond yields approached 7% last week. Borrowing costs will be under pressure, if Madrid fails to reassure the financial community. The E.C.B could be forced to step-up its sovereign bond purchases. There is no other choice, at the moment. Nonetheless, the situation is not sustainable over the longer- term. E.C.B. essence is at risk. As a result, European governments will be asked to approve the new EFSF guarantees for the second consecutive time.

Europe should remain on the sell side for now. It will be difficult to convince the markets of the contrary. Long-term cycles have not completed their trajectories yet. The economic growth is fading away and the contraction is spreading into solid countries such as Germany, Holland and France. So, what is next? The euro could fall to 1.32/1.28 and only a swing above 1.4460 would lift the price to 1.48/1.52. Stock indexes are approaching important support lines as well. A move below the 50 days MA at 1186 could take the S&P 500 to 1180 and possibly to 1140. A breakout over 1287 might instead support the price to 1297 and eventually to 1350. December is one of the best months for stock indexes and for the euro currency.

Angelo Airaghi, www.profitson.com

Short Term Trading: --EUR/USD on Thursday, November 17, 2011

noreply@blogger.com (ProfitsOn) — Sat, 17 Dec 2011 20:35:35 PST

--EUR/USD at 1.3402, stop-loss at 1.3470, target at 1.3392 or MOC. The trend is below the 50 days MA. The U.S. dollar could challenge support.