International Trading

US: Industrial Production Unexpectedly Dipped in September

noreply@blogger.com (Usman Ali Minhas) — Mon, 18 Oct 2010 15:03:00 +0000

International Trading

Industrial production declined 0.2 percent in September—the first monthly decrease since the recession ended in June of 2009. Utilities output dropped 1.9 percent and manufacturing production gave up 0.2 percent.

Mostly Unexpected Dip, Slow Growth Ahead
Given the expansionary numbers we have seen in the ISM report in recent months, the decline in production comes as something of a surprise. However, the small decline in average weekly hours worked in the factory sector from the employment report did provide some clue that things could deteriorate somewhat. We still expect to see slower growth rather than outright declines in output for the fourth quarter.

Utilities, Manufacturing Output Both Down
Utilities output fell 1.9 percent, but it only comprises 12 percent of total output. Manufacturing production makes up roughly three quarters of total output, and that measure showed a decline of 0.2 percent on the month.

Capacity utilization fell slightly from an upwardly revised August level. There remains plenty of capacity in the system and at present levels there is little concern for inflationary pressure.

Download full report with charts

The September inflation surprised strongly on the upside

noreply@blogger.com (Usman Ali Minhas) — Mon, 18 Oct 2010 15:01:00 +0000

International Trading

Czech Republic
The current account is heading for a worse figure this year

Hungary
Introduction of new taxes on energy, telecoms and retail companies brings mixed reaction

Poland
The September inflation surprised strongly on the upside

The Week Ahead
Polish industrial output and Czech bond auction might grab some attention
Overview
Markets start to bet on hikes in the Czech R. and Poland
The market expectations of a possible hike in the official interest rates in the Czech Republic and Poland are slowly increasing. The rise in Polish and Czech FRA rates is related not only to a possible contagion from the euro market, where short-term interest rates are obviously rising. However, domestic factors are also fuelling concerns that the relevant central banks will need to react to the risk of future inflation sooner or later.
The ammunition for an increase in market expectations in the Czech Republic was primarily supplied by central bankers and the latest inflation figure was largely irrelevant in this respect. Exact the opposite was true for Poland. Its inflation rate for September surprisingly rose by 0.6% m/m and although it was primarily driven by increased food prices, it encouraged the view that a rate hike cycle would be launched soon.
We agree that official rates in the Czech Republic and particularly in Poland will go up in the end (in the middle of 2011 and late 2010 respectively). However, we doubt whether the current pricing of the start of the hiking cycle is correct. At the moment, markets have priced in that the official interest rate may go up by 25 basis points in the Czech Republic and even 50 bps in Poland before the end of the first quarter of 2011. We would consider such a move to be highly aggressive and, beyond any doubt, it would trigger a sharp appreciation of the domestic currency. And having a strong currency is not popular macroeconomic strategy in the age of a global currency wars.
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Currency Majors Technical Perspective

noreply@blogger.com (Usman Ali Minhas) — Mon, 18 Oct 2010 14:56:00 +0000

International Trading

EUR/USD Current Price: 1.3924
View Live Chart for the EUR/USD

EUR/USD spent most of the European session hovering around the old strong support at 1.3890, the 61.8% retracement of the 1.5140/1.1870 rally. Currently heading higher after a much better than expected TICS’ reading in the US, pair has a slightly bullish tone according to hourly chart, with price above 20 SMA (that holds a strong bearish slope anyway) and indicators heading north, yet below their midlines. Price needs at least to consolidate above 1.3935 to turn intraday bullish, while lose of 1.3880 should signal further falls for today.

Support levels: 1.3880 1.3840 1.3810

Resistance levels: 1.3935 1.3970 1.4010

GBP/USD Current Price: 1.5874
View Live Chart for the GBP/USD (Select the currency)

Pound has turned strongly bearish after losing 1.6000 price zone past week, with hourly chart still showing indicators heading south, below their midlines, while 20 SMA contains the upside around 1.5920. 4 hours chart however, is giving some signs of exhaustion to the downside that could keep downside limited. Still, lose of 1.5840 could trigger a bearish run with next strong support around 1.5770 support.

Support levels: 1.5840 1.5810 1.5770

Resistance levels: 1.5920 1.5960 1.6000

USD/JPY Current Price: 81.29
View Live Chart for the USD/JPY (select the currency)

Unchanged since last updates, pair holds a tight range with a persistent bearish tone as indicators in the hourly chart hold below their midlines, while 20 SMA acts as dynamic resistance area, limiting the upside for now. Double floor around 80.85 remains valid, with the neckline around 81.65: only above this last, pair could turn intraday bullish, aiming to test the 82.00/20 price zone.

Support levels: 81.10 80.80 80.40

Resistance levels: 81.65 82.00 82.25

USD/CHF: Current Price: 0.9576
View Live Chart for the USD/CHF (select the currency)

Back losing ground, the bearish trend remains intact in the cross, as long as below 0.9700 price zone; a daily close above that level could signal a bullish at least corrective movement, still not seen at this point. Approaching 0.9550 immediate support and daily low, hourly chart holds a bearish tone as per indicators aiming to cross their midlines, and price developing below 20 SMA. Lose of mentioned level will confirm the bias for today.

Support levels: 0.9550 0.9500 0.9460

Resistance levels: 0.9590 0.9620 0.9660

Fed chiefs line up to support more easing

noreply@blogger.com (Usman Ali Minhas) — Mon, 18 Oct 2010 14:51:00 +0000

International Trading

The dollar is fighting back after a near one-month battle with currency majors as dealers start to think deeper about the size of the package the Fed is likely to deliver in November. The yen on the other hand is maintaining its position as currency du jour as safe haven flows prop up its value around the world. The numerous factors arguing in favor of the yen as a refuge in tough economic times make things harder for the Bank of Japan as it struggles to find enough fingers to plug the dike as currency strength trickles through to create tough times for exporters. Dealers remain wary about the chances of central bank intervention ahead of a weekend summit of finance leaders in South Korea.
U.S. Dollar – The 55th Annual Economic Conference hosted by the Boston Federal Reserve at the weekend offered a platform for two more regional central bank speakers to offer their support for further monetary easing. Chicago Federal reserve President Charles Evans warned of the “liquidity trap” facing the domestic economy in which borrowers fail to respond during a period in which a wall of money is offered at ultra-low interest rates. Mr. Evans claims that the Fed’s dual mandate would significantly miss target by the end of 2012 if current forecasts calling for unemployment at 8% and an inflation rate of 1% hold true. Boston Fed President Eric Rosengren also warned that preventing deflation might be far less expensive than dealing with eradicating it should it arrive. Last week Chairman Bernanke also stated that there appears to be a case for further monetary action. The dollar initially shuddered sending it to its weakest against an array of currencies since January. But as investors mull precisely what dollar value of easing might be announced, the market appears to be indicating that perhaps too much has been priced in. The dollar index today has rebounded to 77.41 compared to Friday’s desperate reading of 76.15.
Euro – The Bernanke speech at the start of Friday’s trading saw the euro surge to $1.4158. However, later in the day the dollar found its feet and has continued to sprint on Monday morning having eroded some of last week’s strength. The euro has weakened this morning to as low as $1.3831 according to Interactive Brokers data. Later in the week the ZEW investor confidence survey will be put to the test and is predicted to show a continued decline in investors’ optimism over the nearby climate for investing. The euro eased against the yen to stand at ¥113.00 in early New York trading.
British pound – The coalition British government will detail the final spending cuts in the Comprehensive Spending Review on Wednesday. Chancellor of the Exchequer George Osborne will detail the decisions taken at an emergency budget following the summer general election in which a broad 25% cut in most ministerial budgets was announced. The Chancellor aims to eliminate a current deficit of £156 billion after four years. The pound trades defensively to begin the week and reached $1.5838 before rebounding to $1.5900 in the early New York session. The pound dipped by one yen to stand at ¥129.27 this morning.
Japanese yen – Dealers see little prospect of nearby intervention from the Bank of Japan ahead of a G20 meeting of finance chiefs and central bankers at which the thorny issue of currency values will be discussed. Even as the dollar jumped on Monday, it was countered by ongoing flows in to the Japanese unit having the effect of maintaining the yen’s value against the greenback. Today the dollar buys ¥81.29. In domestic data retail sales slipped somewhat around the country with a September report showing nationwide department store sales stood 5.2% lower than at the same time last year, while in Tokyo the decline was less dramatic. Store sales dipped 3.8%.
Aussie dollar – A fleeting spike through parity against the greenback on Friday lasted for less than five minutes and coincided with the release of text from Fed Chairman Bernanke. The dramatic move appears to have been caused more by stop-loss buying rather than the words of the Chairman. For several weeks investors bought the Aussie unit as the dollar’s spiral lower created a sense of self-fulfillment. But now as dealers begin to focus on the dollar value of a fresh round of easing, commonsense appears to be the order of the day. In light of this the Aussie has shed exactly two cents to 98.00 U.S. cents this morning. Against the yen the Aussie also declined to ¥80.22.
Canadian dollar – The Bank of Canada meets Tuesday to determine its next move. On the eve of that meeting the market predicts a less than one-in-10 chance of a further interest rate increase. The weakness of the U.S. economic picture is a significant external distraction to Governor Carney and his team as to make them sit tight-lipped on the sidelines possibly through next spring. The Canadian dollar has so far given back 240 pips of its Thursday visit to parity with the U.S. dollar and now stands at 97.95 U.S. cents.

Weekly Technical Commentary

noreply@blogger.com (Usman Ali Minhas) — Mon, 18 Oct 2010 14:48:00 +0000

International Trading

USD/JPY
Chart Levels:
Support 81.00..80.88..80.00..79.75.
Resistance 81.65..82.20..83.00..84.00.
The Japanese authorities may protest but can expect little sympathy let alone help at this week’sG20 meeting hosted by South Korea. Generalised US dollar weakness has taken the yen almost to its record low of 79.75 of 1995, a multi-year low at 80.88. Other major currencies are doing something similar, Cable and the Euro among the weaker ones. The greenback is very oversold yet all elements of this weekly Ichimoku chart continue to suggest a short position. On balance volume may be at a record but futures open interest remains subdued. Proceed with caution.

EUR/USD
Chart Levels:
Support 1.3775..1.3700..1.3635..1.3550.
Resistance 1.4030..1.4161..1.4200..1.4340.
Last week’s ‘spike high’ and ‘doji’ candle at the top of a narrow weekly Ichimoku ‘cloud’ suggests we will consolidate under 1.4161 this week and maybe until month-end. The overbought situation has already been corrected but bullish momentum has halved. First Fibonacci 38% retracement support lies close to a horizontal, widening weekly ‘cloud’ in December which will hopefully provide support for another rally at year-end. Note that in Q2 2010 the Euro saw one of its biggest quarterly rallies ever, both against the US dollar and as measured by the ECB’s Effective Exchange Rate.

EUR/JPY
Chart Levels:
Support 112.00..111.00..110.50..109.30.
Resistance 113.75..114.00..114.75..115.75
Retreating from the upper edge of the range since May, as expected, but keep in mind that the formation could actually be a potential ‘broadening bottom’. We continue to favour a pullback into the middle of the range and the 26-week moving average at 110.50. Other yen crosses also retreated last week, though few have chart levels as clear as this pair. Momentum has switched from very bullish to marginally bearish, the RSI tumbling dramatically. Until year-end a case can be made for a series of random moves roughly between 105.00 and 115.00.

GBP/JPY
Chart Levels:
Support 127.60..126.70..125.25..120.00.
Resistance 131.35..133.05..134.55..135.05.
Though still holding above this year’s low at 126.70 set in May, which lies ahead of 2009’s record low at 118.80, this pair is trading well over two standard deviations below the mean of the last twenty years. Price action looks ‘heavy’ so we continue to favour another small notch lower some time this quarter. Momentum remains bearish, as it has been all this year, and sterling is not especially oversold against the yen. One-month at-the-money should hold around the 14.00%, where it has spent most of 2010. A daily close below 120.00 would set up for a rush to re-test the record low.

GBP/USD
Chart Levels:
Support 1.5750..1.5650..1.5500..1.5300.
Resistance 1.6000..1.6110..1.6275..1.6335.
Cable continues to struggle with Fibonacci 61% retracement resistance while hovering above a large weekly Ichimoku ‘cloud’. Hopefully the rising 9-week moving average will add some much-needed bullish momentum. Until then conceivably it could drop all the way back down to 1.5350 prior to a rally to pivotal very long term resistance clustered between the 1.6800 and 1.7000 levels next year. Consensus opinion has it holding at current levels for the next twelve months, unlikely against a backdrop of generalised US dollar weakness, but a possibility. (It held 1.5700 to 1.6700 May-Dec09).

EUR/GBP
Chart Levels:
Support 0.8695..0.8625..0.8425..0.8200.
Resistance 0.8805..0.8850..0.8910..0.9055.
Last week’s irregular ‘doji’ above 61% Fibonacci retracement resistance of the decline from March’s peak at 0.9150, just under a descending weekly Ichimoku ‘cloud’, adds fractionally to our view. We expect another new interim high to form, maintaining the succession of lower highs starting with January 2009’s peak, for a drop back down to what is in our opinion the pivotal 0.8400 area. Note how the lower edge of the weekly ‘cloud’ drops from 0.8800 to 0.8400 starting in November. Only when this pair starts holding clearly below 0.8400 can we be more confident that another bout of serious and sudden sterling weakness has been avoided.
Download Full Weekly Technical Commentary - USD/JPY - EUR/USD

Download Full Weekly Technical Commentary - EUR/JPY - GBP/JPY

Download Full Weekly Technical Commentary - GBP/USD - EUR/GBP

Currency Market Review

noreply@blogger.com (Usman Ali Minhas) — Mon, 18 Oct 2010 14:46:00 +0000

International Trading

Of late the U.S dollar has experienced across the board downside pressure as the markets speculate over the size of the Federal Reserve’s second round of quantitative easing. Although, there are schools of thought argue the effects have been fully priced in, and that any disappointment on the size of asset purchasing will result in a dollar rally. After Ben Bernanke’s calculated speech on Friday the dollar has bounced off its lows as the prospect of a surprise diminishes, and the markets consider the validity of further dollar selling.

• Yields on debt issued by some of the European Peripheral Nations have narrowed against the benchmark German bund, and the CDS market has eased. Improvements in the bond market coincided with ECB member Axel Weber’s hawkish rhetoric over the central bank’s role as buyers of debt resulted in EUR/USD temporarily breaching the 1.4000 handle at the end of last week’s trade. However, ECB president Jean-Claude Trichet failed to continue in a hawkish tone as he was quoted as saying that Weber’s views would be met with disagreement from other ECB members. The single currency is off the highs and is currently priced at 1.3900.

• The Japanese Yen is the only major currency to trade slightly higher as the failed intervention by the Bank of Japan has led to a crisis of credibility for the central bank. After much jawboning, and a wasted $25bn the Yen continues to strengthen against the dollar. USD/JPY continues to grind higher despite the pair approaching the key 79.722 all time low. U.S dollar funded carry trades are growing in popularity as the Federal Reserve keep rates at all time lows, and eye further easing measures.

• AUD/USD is trading off the parity highs as traders wait for the RBA minutes from October’s meetings. The RBA kept rates on hold at 4.50% as the stronger currency off-sets potential inflation. Australia and their currency have benefitted from China’s appetite for resources as they continue to out grow much of the developed world.

US: Preview of Data for the Week of October 17−22

noreply@blogger.com (Usman Ali Minhas) — Mon, 18 Oct 2010 14:43:00 +0000

International Trading

On Tap This Week: Fed Speakers and Data on Manufacturing and Housing

The US data focuses on 2 key themes. The first is a slew of Federal Reserve Officials giving speeches. The data that is on tap this week will have to share the spotlight. On the data front, we get a look into manufacturing and housing. These are two key sectors and are on the mind of FOMC policy makers. While manufacturing helped spearhead the recovery, activity and job gains have cooled. Meanwhile, the housing market hit a rough patch following the end of the expiration of the government’s home-buyer tax credit.

The next important date for the US calendar will be the Fed’s Nov. 2-3 meeting. With the amount of Fed speakers on tap before then, it seems likely that the Fed will clarify the criteria that will trigger more easing, and perhaps offer some clues as to the size and scope of purchases.

Mid-Week: Fed Officials Make the Rounds and Beige Book

Tue 10AM FOMC Member Dudley – Due to speak at the Regional economic briefing, in New York.

7PM FOMC Member Duke – Due to speak at the Money Marketeers Club, in New York.

Wed 2PM Beige Book

Thu 2PM FOMC Member Bullard – Due to speak on the US economic outlook and monetary policy at the Federal Reserve Bank, in St Louis.

9:45PM FOMC Member Hoenig Speaks – Due to speak about the US economic outlook at the business and community leaders conference, in Albuquerque.

This week we have 4 member of the FOMC taking to the podiums and their comments will set the tone for the week as they embark on the messaging of more quantitative easing, and what triggers are needed for the FOMC to start more quantitative easing come Nov. 3rd. In addition to official speeches, the Fed will release its Beige Book on Wednesday. This compilation of anecdotal economic data is being prepared in advance of the November policy meeting, so this will be the most up to date information that the FOMC will be basing their decision.

Manufacturing – Industrial Production and Philly Fed Survey

On Monday, the Fed itself will report on industrial production and capacity for September. This indicators gives measures the output from the nation’s manufacturers, mines and utilities. The consensus is for a 0.2% rise, matching the gain seen in August. The capacity utilization rate – or the percentage of factories in use – is projected to edge up to 74.8% from 74.7%.

Here’s a look at the year-over-year change courtesy of tradingeconomics.com and we can see the sharp slide as the US fell into recession, and the healthy rebound and gains during 2010. However, now the pace of growth is slowing, as manufacturers more closely align their inventories to sales and the ratio between the two has more or less normalized.

In a second look at manufacturing, we get the Philadelphia Fed survey, a leading indicator as it measures October. Expectations are for the general conditions index to improve to 0.5 from -0.7 in September. The NY Empire index, which was released last week on Friday, was unexpectedly strong 15.7 (expectations had been a climb to 7.1 from September’s 4.1).

I wonder if the decline of the Dollar will show up in manufacturing data soon, as a weaker greenback can help spur exports growth.

Housing – Starts

Tuesday brings data on housing, a look at demand for new homes in the form of housing starts. The median forecast is for starts to fall 3.2% to an annual rate of 579K during September, after starts had jumped 10.5% in August. Building permits are projected to rise 1.2% to 578K.

The pace of new housing starts has been bouncing along the bottom since February 2009. While last month saw a decent bounce back of 10%, we are working from very depressed levels. So, while things may not be getting worse, we’ll see if the pace of starts falls back again in September.

A second report on housing, provided by the National Association of Home Builders, will give us a look at confidence of home builders. The housing market index for October is expected to edge up to 14 this month from a very low reading of 13 in September. This is a leading indicator compared to the housing starts data, and will actually come out first on Monday.

Our Weekly Look at Jobs

Another key data point will be Thursday’s weekly jobless claims because it will cover the pay period for the October employment report. Economists expect claims for the Oct. 16 week to total 455,000, not low enough to suggest strong hiring in October.

Claims have hovered between 450K and 490K for almost a year, but are now in the lower part of the range. Still until claims get below 450K we are not going to see the unemployment rate coming down.

Gold under Pressure as U.S. Dollar Mounts Strong Rally

noreply@blogger.com (Usman Ali Minhas) — Mon, 18 Oct 2010 14:42:00 +0000

International Trading

The stronger U.S. Dollar is putting pressure on December Gold overnight. Long traders began taking profits in gold on Friday following a turnaround in the Greenback, triggered by conservative comments from Fed Chairman Bernanke regarding quantitative easing.

The overnight sell-off has helped form a two-day top in Dec. Gold at $1388.10. The new main range is $1237.90 to $1388.10. This makes $1313.00 to $1295.30 a potential downside target. The swing chart indicates that a break through $1325.80 will turn the main trend down.

December Silver is developing a similar patter, but not as bearish as gold. The short-term range in Silver is 22.35 to 24.95 with a retracement zone at 23.65 to 23.34. The bigger picture suggests a possible break to 21.37 to 20.52 based on a range of 17.79 to 24.95. In addition to the retracement zone targets, a steep uptrending Gann angle at 23.87 is still providing strong support.

Last night, silver broke the Gann angle but stopped short of testing the minor 50% level at 23.65. The actual low was 23.71. After testing this retracement level, the market regained the uptrending angle, reducing some of the developing bearishness.

Look for weakness to develop under 23.87 and a possible acceleration to the downside under 23.65.

The U.S. Dollar confirmed Friday’s closing price reversal bottom with a follow-through rally overnight. The Greenback hit a 10-month low against a basket of currencies on Friday, but rebounded after Federal Reserve Chairman Ben Bernanke expressed uncertainty as to how much monetary easing the Fed would allocate to its quantitative easing program.

Following an almost 5 percent decline in October after investors increased bets the Fed would apply at least $1 trillion of new quantitative easing, traders pared bets on speculation the amount may not be nearly that amount. The overnight trading action suggests that the market may have priced in too much QE into the market.

Adding uncertainty over the Fed’s next move along with short-term oversold conditions, investors face the challenge to either take profits on short positions or put up with a possible choppy trade until the next Federal Open Market Committee meeting on November 2 and 3.

Some traders are also questioning whether Bernanke has the votes to implement a strong enough QE program although it’s been reported that at least 2 Fed members are leaning toward supporting an aggressive QE program.

Bernanke said on Friday that he fears deflation more than inflation. He also suggested that the Fed must do something to stay on course to reach its mandate of 2% inflation. This can only be accomplished through aggressively flooding the market with money.

So while there is a lull in the Dollar’s downtrend and a possible short squeeze taking place, many traders expect this current move in the Dollar to be short-lived. Once the Fed restarts the money printing machine, the Greenback should resume its uptrend. This may mean a 2 week consolidation or short-covering rally until the Fed meeting.

The December Euro closed below 1.40 for the week, taking the air out of some analyst forecasts for a move to 1.45. The outside move closing price reversal top could also be indicative of the start of a substantial correction. Last night’s follow-through break confirmed the reversal top.

This week’s rally through the last swing top at 1.4028 to Friday’s high at 1.4159 appeared labored. At times it seemed traders were tentative about going long at such a lofty level. In addition, much of the move seemed driven by a comment from the ECB’s Axel Weber calling for an end to the central bank’s asset buyback program rather than sound economic reasons.

Although the weakness started early in the U.S. session, Federal Reserve Chairman Ben Bernanke didn’t help matters much when he failed to clarify the Fed’s quantitative easing plan.

Bernanke gave a speech on Friday which failed to give traders the clarity they needed to continue to pressure the Dollar. Some feel that Bernanke may be lacking the consensus he needs to implement the QE program that he feels is necessary to revive the economy.

Technically a break through the last swing bottom at 1.3775 will turn the main trend down on the daily chart. The main trend indicator turned long on September 1. Besides turning the main trend to down, a break through this level may be setting up for a 50% correction of the 1.2587 to 1.4159 range to 1.3373.

Forex − EUR/USD, AUD/USD Flows − The picture changes?

noreply@blogger.com (Usman Ali Minhas) — Mon, 11 Oct 2010 16:09:00 +0000

International Trading

Published at 14:14 (GMT) 11 Oct
It's not a big move in terms of a normal market, but the push back to the north by the AUD appears to be at least a slight recognition of short positions at the business end of the AUD. Trade, we are told, is 'busy for a US holiday', an expression which could be taken in a number of ways! Technical studies are only slightly bearish on the currency, and another push to challenge the overnight highs in the 0.9905/10 area is all that it would take to change the picture to support the buyers. C.F.

Currency Majors Technical Perspective

noreply@blogger.com (Usman Ali Minhas) — Mon, 11 Oct 2010 15:04:00 +0000

International Trading

EUR/USD Current Price: 1.3930
View Live Chart for the EUR/USD

After starting the week around 1.4000, pair gave up some ground following a risk aversion movement triggered by China decision of raising the deposit reserve requirement for the country’s big four state-owned lenders and two other commercial banks, by 50 basis point that could affect the country growth.

Consolidating in a tight range due to the lack of volume, hourly chart shows indicators mostly flat, while 4 hours ones lost momentum; still pair holds above key 1.3880/90 area, 61.8% retracement of the 1.5140/1.1870 rally and the ascendant trend line. The upside remain now limited by 1.3960 static resistance zone.

Support levels: 1.3910 1.3880 1.3840

Resistance levels: 1.3960 1.3990 1.4030

GBP/USD Current Price: 1.5928
View Live Chart for the GBP/USD (Select the currency)

Unchanged from past Friday’s Wall Street opening, pair has a bearish tone for this week, as limited by strong 1.6000 resistance zone. Hourly indicators heading south under their mid lines, while price action develops under 20 SMA support the bas. Immediate support lies at the 1.5880 area, followed by 1.5810/40 zone.

Support levels: 1.5880 1.5840 1.5810

Resistance levels: 1.5950 1.5985 1.6020

USD/JPY Current Price: 81.93
View Live Chart for the USD/JPY (select the currency)

Pair reached yet another low near 81.40 on early interbank trading past weekly opening, and remains limited below 82.20 static resistance zone, holding a bearish tone in the different time frames; counting on BOJ intervention to reverse the strong trend seems not the best move in the cross, as lose of mentioned 81.40 low should suggest a retest of the all time low in the cross near 70.75.

Support levels: 81.40 81.10 80.90

Resistance levels: 82.20 82.40 82.65

USD/CHF: Current Price: 0.9625
View Live Chart for the USD/CHF (select the currency)

Ranging, pair holds the bearish tone both in 1 and 4 hours charts, limited today to the 0.9600/0.9640 price zone, as thin volume persists. Gold is giving up some ground, favoring the upside in the cross, thus gains above 0.9670 seem quite unlikely for today.

Support levels: 0.9600 0.9555 0.9500

Resistance levels: 0.9640 0.9670 0.9700

Czech and Polish C/A balances in significant deficits

noreply@blogger.com (Usman Ali Minhas) — Mon, 11 Oct 2010 14:57:00 +0000

International Trading

Czech Republic
FRA rates up, but rate hike expectations are premature

Hungary
Huge ecological catastrophe may not have significant on the economy

Poland
Parliament will discuss the draft of the public budget with deficit of 6.5 % of GDP

The Week Ahead
Czech and Polish C/A balances in significant deficits
Overview
Industry in Central Europe tracks strong German data
The August data on industrial output in the Czech Republic and Hungary show that the upswing in Central Europe continues. This is well in line with the outstanding performance of German industry, to which Hungarian and Czech industries are tied very closely.
In addition, a very positive phenomenon in both Central Europe and Germany is the level of new contracts that still remains very high. That’s very good news as the fiscal stimuli (such as scrapping bonuses) that positively influenced the performance of Central European industry, which is very strongly oriented on exports, have run out of steam.
Nevertheless, despite the highly positive results of Central European industry in recent months, we are afraid that this won’t continue necessarily given the fiscal tightening within the euro area in 2011, along with the inventory replenishment process slowly drawing to a close,. This will have a negative impact on exports and consequently on industrial growth in the region. Another argument against the optimistic expectation that industry will maintain its fast rise is associated with the fact that Hungarian and Czech industries will not be able to utilise the ever-improving demand from Asia to such a great extent as, for example, the German economy. The reason is that the exports from Central European countries to the Asian continent are negligible, representing approximately 5% of all exports.
Download Full Central European Weekly

EUR/USD Intraday

noreply@blogger.com (Usman Ali Minhas) — Mon, 11 Oct 2010 14:54:00 +0000

International Trading

Strategy Neutral – Entry Short

Entry 1.4007

1stTarget 1.3952

2ndTarget 1.3900

Stop 1.4029

Key Levels Comments

1.4195 2010 High

1.4029 Thursday’s Eight Month High

1.4007 This Morning’s High

1.3952 Gap Support

1.3938 Friday’s Close

1.3900 Previous Support

1.3834 Friday’s Low

Alternative Scenario Neutral – Entry Long

Entry 1.3952

1st Target 1.4007

2nd Target 1.4029

Download Full Fx Strategies For Majors

Strategy	Neutral – Entry Short
Entry	1.4007
1stTarget	1.3952
2ndTarget	1.3900
Stop	1.4029

Key Levels	Comments
1.4195	2010 High
1.4029	Thursday’s Eight Month High
1.4007	This Morning’s High
1.3952	Gap Support
1.3938	Friday’s Close
1.3900	Previous Support
1.3834	Friday’s Low

Alternative Scenario	Neutral – Entry Long
Entry	1.3952
1st Target	1.4007
2nd Target	1.4029

US data still support case for QE2

noreply@blogger.com (Usman Ali Minhas) — Mon, 11 Oct 2010 14:49:00 +0000

International Trading

Market Outlook
=> US data still support case for QE2
=> G7 meeting unlikely to change underlying story of USD weakness
The G7 meeting at the weekend will be the main focus for FX markets coming into the week, given all the talk of “currency wars”, the recent BoJ intervention and the comments from Juncker complaining about EUR strength. But it is very hard to see the G7 producing a communique that significantly opposes further USD weakness against the majors, much less coming up with co-ordinated policy steps to target exchange rates as in the Plaza and Louvre Accords of the 1980s.
The comments in the IMF’s latest world economic outlook should make it clear that there can be no agreement that the dollar is even undervalued. The IMF note that the dollar is still, by their measures, still on the strong side of medium term fundamentals, while the euro and the yen are broadly fair. This may not fully take into account the weakness of the dollar seen over the last month, but nevertheless indicates that the US is very unlikely to see current levels as a reason for opposing USD weakness, especially since the Fed sees US inflation as still lower than is desirable. The most the G7 are likely to agree on is the timeworn statement that “Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We continue to monitor exchange markets closely, and co-operate as appropriate”. This is standard, and essentially allows the market to move as it wishes, provided the moves are not too fast. The BoJ may yet make some more incursions into the market, but comments last week made it clear that these are smoothing operations rather than representing a line in the sand. The only clear FX recommendation that the G7 are likely to be prepared to make is that China allows its currency to continue to appreciate, but that is an issue that China will decide on.
As far as events are concerned this week, the market will be interested in the latest FOMC minutes (from the Sep 21 meeting) on Tuesday, but the recent Fed statements make it clear that QE2 is very much on the table, and it is unlikely that the minutes can add much to that at this stage. The market will consequently be interested in the US data, following last week’s slightly disappointing employment report and Bullard’s comments indicating some improvement in the US data of late. Most of the data is on Friday, and the Fed focus on low inflation in the latest statement suggests a focus on CPI.
In the UK, the labour market data may be the most relevant in terms of the QE debate, though the activity data has been generally soft. Sterling may hold up better against the EUR because Euro-zone opposition to USD weakness makes sterling an easier vehicle, but the underlying risk of QE2, relatively low UK short yields and weak UK growth prospects make a major sterling recovery look unlikely.
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UMI consumer sentiment index (Oct): Less pessimism

noreply@blogger.com (Usman Ali Minhas) — Mon, 11 Oct 2010 14:47:00 +0000

International Trading

FOMC minutes (Sep): discussion about QE2 and release of adjusted projections

Trade balance (Aug): widening partly due to petroleum imports

Consumer prices (Sep): annual core rate stagnates at 0.9%

NY Empire manufacturing index (Sep): modest rebound

Retail sales (Sep): stronger rise particularly due to car sales

UMI consumer sentiment index (Oct): less pessimism

After the last meeting, the FOMC expressed its inclination to provide additional accommodation if needed to support the slowed economic recovery. The willingness to extend the easing measures was supported by the view that underlying inflation is currently at levels somewhat below those regarded as consistent with price stability. However, the FOMC minutes could show that not all members agreed on the need for additional quantative easing. Nevertheless there will have been some discussion about the possible design of “QE2”. The FOMC minutes will also include adjusted projections for GDP growth, unemployment and PCE inflation. As the table shows, the projections for growth and inflation were reduced and the projection for unemployment was already raised three months ago. We think that this could happen again. However, the inflation forecasts were already quite low.
Import prices are likely to have fallen by about 0.3% mom in September, due to the decline in crude oil prices by about 6% in the statistically relevant first third of the month. The annual rate, which was 11.4% at the beginning of the year, could have gone down further to 3.6%. After having risen noticeably by 0.4% mom in August, producer prices might have increased moderately by 0.1% mom.
As adjusted gasoline prices could have risen again, we predict that consumer prices will have gone up by 0.2% mom in September. However, core CPI will probably have increased by a mere 0.1% mom, leaving the annual rate at 0.9% for the sixth consecutive month.
The trade deficit widened significantly in June, but corrected downward by almost $7bn in July, as imports fell sharply and exports rebounded. The ISM components for imports and exports remained elevated in August, and we therefore assume that exports and imports both have increased noticeably. However, imports are likely to have risen somewhat more than exports in August, because official figures from the Department of Energy indicate markedly higher oil imports. Thus the trade deficit could have widened to about $44.0bn. However, net exports are unlikely to have dampened the GDP growth rate in Q3, after they had accounted for –3.5 percentage points in Q2.
Initial jobless claims went down by 11k to 445k in the week ending 2 Oktober. The 4-week moving average has been declining for six consecutive weeks to 456k at present. We expect jobless claims to have remained more or less unchanged in the week ending 9 October.
The New York Empire manufacturing index fell by 3 points to 4.1 in September, but its weighted subcomponents improved slightly. Therefore we expect the headline figure to have improved to about 7.0 in October, especially as the last index level appeared low compared to the national ISM index. However, the inventory adjustment cycle could be in its final stages, thus giving manufacturing less support. The predicted October level of the New York Empire is still only modest compared to the peak of 31.9 in April.
We expect retail sales to have increased by 0.6% mom in September. This would be somewhat stronger than in August, particularly due to higher car sales, which will be additionally lifted by a favourable seasonal adjustment figure. According to industry reports, back-to-school sales developed favourably, and thus the increase less autos could have reached 0.4% mom again; although consumer confidence indicators deteriorated in September.
The University of Michigan’s (UMI) preliminary October consumer sentiment could have increased slightly from 68.2 to 69.5. The final September index was revised upwards noticeably, showing that late respondents were much less pessimistic. However, the weekly ABC consumer comfort poll deteriorated at the beginning of October.
The growth in business inventories accelerated to 1.0% mom in July. Factory inventories only increased by 0.1% mom in August, but wholesale inventories again went up sharply by 0.8% mom. We forecast that total business inventories will have gone up by 0.4% mom in August.
The Congressional Budget Office (CBO) estimates that the budget deficit in September, the last month of the current fiscal year, was $32bn,compared to –$46.6bn in the same month last year. Higher outlays will have been compensated for by a noticeable improvement in tax revenues. Accoring to the CBO, the total deficit in fiscal year 2010 would amount to $1,291bn. This would be $125bn less than in fiscal year 2009. The deficit would be equal to 8.9% of GDP, after 10% in 2009.
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Forex Technical Analysis on Majors

noreply@blogger.com (Usman Ali Minhas) — Mon, 11 Oct 2010 14:43:00 +0000

International Trading

EUR/USD

Current level - 1.3950
EUR/USD is in a downtrend, after peaking at 1.5146 (Nov.25,2009). Technical indicators are descending, and trading is situated below the 50- and 200-Day SMA, currently projected at 1.3458 and 1.4206.

The overall bias remains positive for 1.4202 resistance area and important support is projected at 1.3796. The uptrend is intact and although today's volatility could be low the focus is still set on 1.4202.
Key Market Levels

Minor Intraday Major Intraweek

Resistance 1.40+ 1.4202 1.4202 1.4450

Support 1.3903 1.3795 1.3335 1.3159

__________

USD/JPY

Current level - 82.06
The pair is in a downtrend from 94.96 high. Trading is situated below the 50- and 200-day SMA, currently projected at 92.60 and 91.06.

Our first target at 81.36 has been filled and the bias remains bearish below 82.20 resistance area for one more spike low towards 80.40. An eventual break above 82.20 will aim at 83.00 major resistance zone.
Key Market Levels

Minor Intraday Major Intraweek

Resistance 82.20 83.00 83.99 93.70

Support 81.36 80.40 80.+ 79.60

__________

GBP/USD

Current level - 1.5953
The pair is in an uptrend after bottoming at 1.4226. Trading is situated above the 50- and 200-day SMA, currently projected at 1.4986 and 1.5539.

With 1.5920 resistance being broke in the last trading day of the week, the bias here is already bullish and we favor a direct rise towards 1.6270, en route to 1.6410. Initial support is seen at 1.5900, followed by he crucial area at 1.5820.
Key Market Levels

Minor Intraday Major Intraweek

Resistance 1.6020 1.6272 1.60+ 1.6460

Support 1.5900 1.5820 1.5290 1.4810

Key Market Levels
	Minor	Intraday	Major	Intraweek
Resistance	1.40+	1.4202	1.4202	1.4450
Support	1.3903	1.3795	1.3335	1.3159

Key Market Levels
	Minor	Intraday	Major	Intraweek
Resistance	82.20	83.00	83.99	93.70
Support	81.36	80.40	80.+	79.60

Key Market Levels
	Minor	Intraday	Major	Intraweek
Resistance	1.6020	1.6272	1.60+	1.6460
Support	1.5900	1.5820	1.5290	1.4810

FOMC minutes to whet markets' appetite for further QE in the US...

noreply@blogger.com (Usman Ali Minhas) — Mon, 11 Oct 2010 14:40:00 +0000

International Trading

The UK monetary policy debate is particularly interesting at present. We expect the vote from the recent October MPC meeting to have been a three-way split, with Andrew Sentance and Adam Posen (and perhaps one or two others) taking opposing sides in the debate, with the remainder of the MPC still in ‘wait-and-see’ mode. Over the past few days, data may have nudged this latter ‘camp’ towards further asset purchases. In terms of key numbers before next month’s MPC meeting, we look for September CPI to show a modest easing in all three main price gauges – although with CPI expected to fall to 3.0% from 3.1%, it remains some way off the government’s target. In the labour market, we look for the ILO unemployment rate to hold at 7.8%, but will also watch closely the more timely claimant count measure. If our own Consumer Barometer survey is correct, claimant count could begin to rise in coming months as companies, faced with weak final demand, re-start job cuts.
This week’s euro-zone data calendar is dominated by August industrial production data, along with final September CPI figures. Last week’s stronger-than-expected German production data (+1.7% m/ m) set the scene, with foreign appetite for Germany’s exports playing no small part in the euro area’s economic fortunes at the moment. Industrial production data from France and Italy are released this week ahead of the aggregate euro-zone number on Wednesday. For the latter, our forecast stands at +0.9% m/m. Beyond this, the focus is on final September CPI data which we expect to be confirmed at 1.8% for euro area as a whole. Trade data are also scheduled for publication on Friday.
This week’s US economic data calendar is busy, with Tuesday’s September FOMC minutes likely to attract particular attention. In its latest policy statement, the Fed noted that it was ‘prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate’. This followed the phrase in August’s FOMC minutes that ‘several members’ felt it appropriate to consider steps to provide additional policy stimulus. The latest minutes will show this body of opinion has now gained significant momentum, with financial markets now primed for a further phase of quantitative easing (possibly as soon as the Fed’s 3 November meeting). In terms of regular economic data, highlights include September CPI, where the continuing high degree of spare capacity in the economy means we look for another subdued annual reading of 0.9% on the “core” measure. Other data releases this week include retail sales, producer prices, trade and Michigan consumer confidence (see accompanying forecast table).
With increasing criticism over the appreciation, or lack thereof, of the yuan against the US dollar, particular attention will be paid to China’s trade balance for September. We expect the trade surplus to have narrowed to $18.0bn, from $20.03bn in August. Meanwhile, the central banks for Mexico, South Korea and Turkey are all meeting this week. However, we look for no change in any of the benchmark interest rates.
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EUR/USD Light volume day

noreply@blogger.com (Usman Ali Minhas) — Mon, 11 Oct 2010 14:38:00 +0000

International Trading

With several major markets closed on holiday, Monday has seen euro pulling back as expected to the 1.3900/30 area, filling past weekly opening gap. 4 hours chart shows the pair found support at the 20 SMA, with indicators above their mid lines despite heading lower. Strong support comes at the 1.3880/90 area, where converge the 61.8% retracement of the 1.5140/1.1870 rally and the ascendant trend line coming from early September. Lose of the level, could trigger some stops and push the pair towards the 1.3800/40 price zone-

Now, 1.3960 comes as immediate resistance level; pair needs to extend gains above it, to confirm further recoveries towards the 1.4000/30 price zone.
View Live Chart for the EUR/USD

Decline in first−time homebuyers: unsuspected consequences of little known phenomenon

noreply@blogger.com (Usman Ali Minhas) — Mon, 04 Oct 2010 19:20:00 +0000

International Trading

Summary
The drastic decline in the cohort of first-time homebuyers in many advanced countries is a little known phenomenon by virtue of the fact that economists tend to focus much more on the cohort of workers. To our eyes, this drop represents a non-negligible risk for the economy of certain countries as real estate constitutes the main component of household wealth.

In the past, any stagnation or contraction in this cohort may have been offset by increased access to homeownership via a structural lowering of interest rates. However, this has not been the case for Japan and Germany, where home prices have fallen 47% and 10%, respectively, since peaking.

The demographic shock that awaits the euro zone and Japan over the next 5 years is unprecedented. In Canada and the United States, instead, demographic trends promise to be much more favourable.

Now that the structural lowering of interest rates appears to be a thing of the past, a sustained increase in homeownership rates is unlikely. Moreover, in our opinion, the popular belief that real estate constitutes a preserver of wealth will be severely challenged. A decline in home prices would result in an erosion of household wealth. This is likely to affect consumer behaviour, which in turn will amplify the impact of government deleveraging on economic growth.

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USD Dollar Crosses Start Week Quietly Ahead of Event Risks

noreply@blogger.com (Usman Ali Minhas) — Mon, 04 Oct 2010 19:18:00 +0000

International Trading

The EUR/USD is sliding to start the week, ahead of ECB’s policy decision on Thursday. The GBP/USD is in consolidation ahead of BoE’s meeting on Thursday, but is showing a bullish bias today. The decline in USD/JPY is stalling above 83.00, with the BoJ looking to conclude its meeting in the upcoming Asian session. The USD/CAD broke below last week’s range support, and is heading to more significant support levels. The AUD/USD pair may be forming a double top in the short-term ahead of the RBA’s policy statement in the upcoming Asian session. The event risks are complicated by Friday’s NFP, so there may be a choppy week ahead. Let’s take a look at these charts.
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How to Time the Market's Biggest Moves

noreply@blogger.com (Usman Ali Minhas) — Mon, 04 Oct 2010 19:16:00 +0000

International Trading

One of the great dilemmas of any investor is timing the market.

I’m not talking about the very short-term ups and downs. Nor am I recommending the kind of quick in-and-out trading that merely racks up more commission revenues for your broker.

Rather, the question I want to address today is how to anticipate some of the biggest, most dangerous — or most profitable — swings in the market that can last many months or years.

A Roadmap for Time Travel

For a preview, take a moment to travel with me back in time to some of the worst years of the Great Depression. I was not there. But my father was. And ever since I was a child, he would tell me the story of those days.

The year is 1931. The U.S. economy has contracted a staggering 25 percent. Millions of workers have lost their paychecks. Consumers are hoarding money, delaying all but the most essential purchases.

Every month, more manufacturers, wholesalers, and retailers are failing, pushing unemployment ever higher and intensifying America’s economic agony.

President Herbert Hoover could not have dreamed of a more adverse environment to begin planning his re-election campaign — not even in his worst nightmares. His popularity has plunged. He fears, rightfully so, that he will be a one-term president.

The public and the press demand to know who or what was to blame for this catastrophe. To survive, the Hoover administration would have to give them answers.

But the president knows that just any answer will not suffice. Only a credible, exhaustively documented, scientific answer could have a chance of restoring the public’s faith in his administration and in the U.S. economy.

And so, Hoover turns to a scientist he trusts — an economic analyst in his administration named Edward R. Dewey.

Later, Dewey will create a nonprofit foundation. And with this foundation, he and his successors will continue a 78-year quest for the forces that drive the economy and investment markets. He will be joined by many of the best minds from Harvard, Yale, Princeton, Oxford, Temple University, Western Reserve, and other globally-respected institutions.

The foundation’s mission is championed by men at the very pinnacle of the scientific establishment — Charles Greeley Abbott, Head of the Smithsonian …William Cameron Forbes, Chairman of the Carnegie Institution … Wesley Claire Mitchell, Founder and Director of the National Bureau of Economic Research …

A former Vice President of the United States — General Charles G. Dawes — joins Dewey’s Foundation …

Also joining are Senator Everett M. Dirksen and Michael G. Zahorchak, Vice President of the American Stock Exchange …

America’s greatest industrialists, philanthropists, and investors finance Dewey’s quest: Men like W. Clement Stone of AON Insurance … Clarence Coleman of the Coleman Corporation … Ned Johnson, the founder of Fidelity Investments … and Alanson Bigelow Houghton, a distinguished congressman, U.S. ambassador, and the chairman of the Corning Glass Works.

In the years that follow, the time-tested tools for timing the markets developed by Edward R. Dewey and the distinguished scientists who continued his research are used by major corporations, banks, brokers, and investment analysts worldwide.

Today, that nonprofit foundation — the Foundation for the Study of Cycles — is the repository of one of the longest term databases in the world. Its historical information goes back as much as FIVE THOUSAND years; its market data, more than 300 years. Its scientists and contributors have made the study of this data their lives’ work.

After poring over the economic and market data leading up to the Great Depression, they learned something that came as a surprise to economists of that era — and also a SHOCK to economists of THIS era.

They learned that, back in the 1920s, before the Crash of ‘29, if a serious researcher had examined the historic data objectively, and if America’s political leaders had dropped their agendas and biases, they might have forecast the Great Depression well ahead of time.

How? By simply recognizing the patterns of history.

Indeed, Dewey discovered a very simple reality — that in modern, industrialized nations, economic expansions and contractions occurred in regular, largely predictable cycles.

You might ask: If the pattern was so predictable, why did the Crash of ‘29 and the Great Depression come as such a shock to virtually everyone?

The answer: For the same reasons they were so shocked by the financial crisis of 2008 … and why they continue to be surprised by the massive foreclosure crisis in the housing market, die-hard high unemployment, and continually sinking consumer confidence:

Reason #1. In the 1930s, no one with any influence in Washington was looking back at the LONG-TERM historic data. And today, most data series that economists use in their econometric models begin in the first year after World War II, at the earliest. But history didn’t start in 1946! Moreover, the critical precedents for today’s era ALL occurred BEFORE 1946!

Reason #2. Like today, even some of the smartest people in the world often believed only what they WANTED to believe — that good times go on forever … that the government has the power to permanently reverse the economic tides … or that printed money ALONE can paper over bad times.

Reason #3. People know that bad times can lead to major political changes. But what they don’t realize is that the reverse is not necessarily true: Political changes are usually not enough to reverse the bad times! No matter who controls Congress and no matter who is in the White House, they still must deal with the same powerful, real-life problems and historical forces — massive build-ups of debts, deficits, and entitlements … huge inventories of unsold assets (such as empty, foreclosed homes) … and more.

Big Clues That Were Missed in the 1930s

Going back to the 1930s, take a look at the pattern Dewey first saw. We don’t have the exact chart he was looking at, but if you create a chart going back to 1789 (140 years prior to the Crash of ‘29), here’s what you’d see …

This is simply the rate of growth and contraction of the U.S. economy.

And the first important cycle Dewey discovered was a major peak in the economy hitting regularly every 20 years (the red line).

Sometimes the actual peak came a bit earlier, sometimes a bit later. But the overwhelming bulk of the decline phase coincided almost exactly with the decline predicted by the cycle.

Specifically, the 20-year cycle predicted a major peak in 1906, and sure enough, the economy began weakening in 1906. And the 20-year cycle then predicted another major peak in 1926.

In addition, analysts living in the 1920s could have known not only that the economy would decline in the late 1920s, but also that the decline would be one of the worst in history. And they could have done so by looking at the longer term 60-year cycle (the blue line in chart above).

This 60-year cycle predicted that:

* We would have a Great Depression in the economy.
* The Great Depression would hit its bottom in the mid-1930s.
* After the Great Depression, the economy would enjoy a massive, long-term boom for years thereafter.

Imagine how different the lives of so many people would have been if only they had some of this knowledge at that time and in this format! Unfortunately, they didn’t.

But today, we do. It does not predict an exact repeat of the Great Depression. There are too many things that have changed. But it does predict a long, protracted decline, probably not hitting bottom until 2012.

What about the Federal Reserve’s promise to launch another round of money printing, commonly dubbed “QE2″? It can certainly drive money into gold and other contra-dollar investments.

But it will not change the long-term direction of the economy. At best, the Fed’s efforts can introduce temporary rallies and recoveries, diminishing the average pace of the decline and stretching it out beyond 2012.

The main reason: The Fed can pump money into the banking system. But it cannot persuade banks to lend to consumers — let alone persuade consumers to borrow and spend the way they used to.

The same was true back in the 1930s.

Go back again to the period before the Crash of ‘29. If you were an analyst in those days, and you could have looked at the Foundation’s charts I showed you earlier, you might have realized that a massive economic decline was imminent.

BUT … with the euphoria of the Roaring ’20s all around you, you might have had a tough time BELIEVING that a Great Depression was around the corner — and an even tougher time convincing your family and friends.

The key back then, as now, was the consumer! And to support your theory, you could also have had data predicting the collapse in consumer spending.

Consumer spending was vital to the economy back then. (And at roughly 70 percent of the U.S. economy, it is even MORE critical today!)

With just one exception — in the late 1800s — the declines anticipated by the cycle analysis coincided with the actual declines in consumer spending.

Look at how accurately it forecast the great decline in the 1860s. And look how closely it matched the decline in the 1920s and 1930s!

No indicator is perfect, mind you. There’s always some variation. But despite major wars that you’d think might disrupt the cycle, the periodicity — the time between each cycle — was actually quite consistent.

How Long-Term Cycles Also Anticipated the Crash of ‘29

If you were an investor in the late 1920s and you used strictly these economic indicators, you would have probably taken your money off the table too soon.

You would have done a lot better if you could have also analyzed the historic pattern in the stock market itself.

The challenge: You would have needed to look back in time far beyond the most recent bull and bear markets. And you would have needed more than just the history of the Dow Jones Industrials.

Instead, you would have needed to compile a composite of the Dow and other stock indexes in the U.S. and the UK going back to the late 17th century, shown here …

As you can see, from the 1700s through the 1920s, there were FIVE major booms and busts (plus two more by the late 1930s).

And with this data, Dewey, the founder of the Foundation for the Study of Cycles, saw several different cycles:

He saw the 20-year and 60-year cycles, which we mentioned earlier, about for the economy. Plus, he saw a shorter term 40-month cycle, known today as the Kitchin cycle. He then created a composite of these to develop a bigger picture overview, which, in turn, could have predicted the Crash of ‘29.

Needless to say, all this analysis is easier done with 20-20 hindsight. But I find it extremely valuable nonetheless. It helps you see the big picture. And more importantly, it can save you from major losses. A case in point:

Back in 2007, while Wall Street was having a grand party, when the Dow was making new all-time highs at 14,000, and when most investors expected that party to continue forever … the Foundation had pinpointed a major cyclical peak in the stock market at September 2007.

This is not a peak they published after the fact. Nor is it one they talked about just a short time before. It was clearly specified in their publications three years earlier! Further, similar analysis was posted on Barron’s online in 2007. Thus …

* An investor who had $100,000 in Dow stocks at their peak in 2007 could have simply looked at this chart — right there on Barron’s online — spotted the coming decline, sold near the top, and kept all or most of his $100,000.
* In contrast, another investor who had the same amount in the same stocks — but did not see or believe this chart — might have held his stocks and lost about 55 percent of his money.
* And still ANOTHER investor could have bought an inverse ETF on the Dow at that time — and more than doubled his money.

EUR/USD: Further falls under 1.3660

noreply@blogger.com (Usman Ali Minhas) — Mon, 04 Oct 2010 19:14:00 +0000

International Trading

Euro has broken under a small ascendant trend line, and even completed a pullback to it, being unable to recover the 1.3700 area. Currently testing 20 SMA in the 4 hours chart, pair could extend its fall if the dynamic support gives up: candle opening below 1.3665 daily low, should confirm a bearish rally towards 1.3580/1.3610 price zone.

The upside remains limited by 1.3730 and only clearly above the level, pair could resume its bullish trend, aiming to retest 1.3780 price zone.

View Live Chart for the EUR/USD

EUR/USD – Stalking Correction; Zig Zag Scenario

noreply@blogger.com (Usman Ali Minhas) — Mon, 04 Oct 2010 19:13:00 +0000

International Trading

EUR/USD – Stalking Correction; Zig Zag Scenario

Day and 4H: The EUR/USD is seen going to 1.39 (61.8% retracement) or higher to 1.41 (swing projection).

However, as the market hits a channel resistance, the market is slowing down and starts this week declining.

In the daily chart, if today’s price action can close below 1.36, there is a clear reversal signal for a more significant correction.

The 4H chart shows the market in an upwards channel. A break out below the channel with a strong bearish candle also signals a more significant correction.

A correction can be seen to be supported near 1.3360. This is at 38.2% retracement. The 1.33 level is also an important support area for a bullish trend.

If the market does indeed break out of the channel, I am going to be stalking the correction for a stronger zig zag type of correction.

1H: The EUR/USD could be in a zig zag. We can stalk the correction both in terms of developing waves and with anticipated support first at 1.35 and then the 1.3360/1.33 area.

The RSI reading in the 1H chart has stayed above 40 since breaking out of the 1.26/1.29 sideways channel.

If the reading breaks below 30, it is likely that the market is reaching to the 1.33 area.

Then remember though, the market is seen to head higher towards the zone between 1.39 and 1.41.

After such a sharp rally since 1.26/1.27, the market is due for a correction. This may be the week.

Currency Currents: A One−Way Bet?

noreply@blogger.com (Usman Ali Minhas) — Mon, 04 Oct 2010 19:09:00 +0000

International Trading

Black Swan Currency Currents 4 Oct 2010

Leading off today is none other than the Commitment of Traders report; we mentioned this in our weekly audio/visual summary provided to our Currency Currents Professional members on Friday. Not surprisingly it showed a net short position on the US dollar greater than any time since mid-2008. The biggest reason for the move was the change in euro positioning.

From Reuters:

Currency speculators' bets against the dollar swelled to $22 billion in the latest week, the largest value since at least mid-2008, data from the Commodity Futures Trading Commission showed on Friday.

That was the largest bet against the U.S. currency since at least June 2008. A short position is a bet that a currency will decline in value.

Most of the move came from speculators' bets in favor of the euro, which rose nearly seven times on the week to 35,330 contracts from 5,097 the prior week. That was the largest net long euro position since at least October 2009, according to Reuters calculations.

The euro is taking it on the chin today. It looks like traders are a little uncomfortable with how extended the euro has become at a time when the US dollar trade appears a bit one-sided. There was another Reuters story we read last night that may have had some influence on the euro to start this week:

Speaking at a conference in Rome, [Governing Council Member Mario] Draghi warned many euro zone banks are much weaker than appears from their balance sheets because the very low level of interest rates understates the worsening of their financial situation.

"The problem of addicted banks should not be addressed by the ECB but by financial authorities," said Draghi, who is president of the Financial Stability Board and governor of the Bank of Italy.

These "zombie banks" need to be identified by national authorities either before or at the same time as the ECB implements its exit strategy from non-conventional liquidity measures, Draghi said.

These comments, at this time, bring to light some additional issues among Eurozone banks, perhaps letting some air out of the euro at current lofty levels. But the market has been shaking off banking concerns like it’s nobody’s business. Maybe the more important tidbit in this story is the latter-mentioned “exit strategy.”

Equating those two words with the ECB right now, when the two words equated with the Federal Reserve are “quantitative easing” (read: lame ducks), could prove quite supportive of the euro. A buying opportunity in the making? Or should we respect this massive US dollar short position and the potential for some of it to unwind from here?

Let’s take a look at the euro going back to October 2009 when long position was last as large as it is now (based on the COT report); presently about 67% long and 33% short:

EURUSD Daily:

The red box denotes October 2009. The euro battled to new highs in November and then it quickly got very ugly, very fast. We’re just saying.

And speaking of just saying, the eurozone is expected to say they back the US et al in their efforts to pressure a Chinese yuan appreciation/revaluation/spin operation. Surely officials in the eurozone didn’t mind the added stimulus of a euro trading at $1.20; now that it’s back at $1.40 it’s time to rail again on China.

But China is not offended. Of course not!

China supports a stable euro and won’t reduce its holdings of European bonds, underlining its strengthening ties with the European Union, Premier Wen Jiabao told Greek lawmakers in Athens.

Strengthening ties? Maybe the Greeks should tell somebody in Brussels about these “ties” before they get too deep in their “currency manipulation” and “global economic responsibility” rhetoric. After all, China and Europe are supposed to be buddies because China buys Eurozone bonds.

So the question is: will the tag-team rhetoric from US/Europe help to balance the global imbalances or simply just redistribute the imbalances among the surplus nations.

China opposes rebalancing via currency policy as we know.

Europe may, to an extent, support redistribution but not just among surplus nations (i.e. away from China, into Germany.) Many are catching on to this game and don’t want to see it continue. Meaning: the benefits of yuan appreciation will need to be felt among deficit nations of the eurozone so that they may escape recession and over-indebtedness. Germany is the obvious beneficiary from a redistribution of surplus away from China, but that’s not going to solve Europe’s problems we don’t believe, and could worsen them.

Et tu, US?

Just some thoughts to get the week started off! Stay tuned for some new trade ideas -- lots of jockeying in front of US Nonfarm payrolls report on Friday could set up some short-term opportunities at least.

Euro Weakness Could Mean Risk is Off Today; Stocks Flat to Lower

noreply@blogger.com (Usman Ali Minhas) — Mon, 04 Oct 2010 19:08:00 +0000

International Trading

Weakness in the Euro could be translating into a risk-off trading session today in the U.S. equity markets. Although they are not moving together closely to the upside, last night’s reversal down in the Euro appears to have triggered a pre-session sell-off in the December E-mini S&P 500.

Recent rallies in the E-mini appear to have been labored with sellers waiting to pounce on each strong rise. Since September 21 there have been three closing price reversal tops, but losses have been limited by the lack of a strong follow-through to the downside.

Technically the E-mini looks weak this morning, having violated a major uptrending Gann angle on the daily chart at 1140.50. This angle is likely to act as a pivot today and should control the direction of the market.

The daily chart is indicating that there is a floor of support at 1128.00 to 1122.00. In other words, the old tops at 1122.00, 1124.50 and 1128.00 are now the new support. Look for weakness to develop if this area is violated with conviction. Otherwise, one has to conclude that this market is developing a bottom for the new higher range that is possibly forming.

Based on the daily swing chart, all we can conclude is this market is in a corrective mode unless 1117.25 is violated. A move through this price will turn the main trend to down.

The December Euro is retreating this morning, after an initial surge, on renewed concerns about the impact of the Euro Zone’s sovereign debt woes.

The Euro was up early in the Asian trading session, boosted by week-end remarks by Chinese Premier Wen Jiabao.

Jiabao helped the Euro when he said “We hope that by intensifying cooperation with you, we can be of some help in your endeavor to tide over difficulties at an early date,” Wen said in a speech to the Greek parliament, according to The Wall Street Journal. “China will not reduce its euro-bond holdings and China supports a stable euro.”

This strong endorsement initially underpinned the Euro until Nobel Prize-winning economist, Joseph Stigliz, warned of sovereign debt threats to the stability of the Euro Region, eroding Jiabao’s bullish spin, and forcing investors to once again face the reality of debt problems in Spain, Ireland and other peripheral nations.

In addition to the Stigliz comments, the Euro was weakened by a further rise in Spanish unemployment.

It was reported last night that Stiglitz said in his book “Freefall” that governments around the world may have attempted to cut deficits too quickly, thereby setting up the possibility of a double-dip recession.

He also warned that the Euro Zone may not survive if competitive tensions continue within the region.

The break this morning in the Euro looks as if investors are paring positions as a precaution against a further acceleration in sovereign debt woes. There doesn’t appear to be any structural damage to the up trend, however, a closing price reversal is developing which could translate into a sizeable correction if confirmed.

Normal profit-taking may also be taking place as the Euro edges toward a major Fibonacci level at 1.3896. Besides a reversal top, a break under a major 50% level at 1.3510 will also be a sign that selling pressure is building.

Nobel Winner Warns Economic Woes Could Endanger Euro

noreply@blogger.com (Usman Ali Minhas) — Mon, 04 Oct 2010 19:06:00 +0000

International Trading

The EUR USD is retreating this morning, after an initial surge, on renewed concerns about the impact of the Euro Zone’s sovereign debt woes.

The Euro was up early in the Asian trading session, boosted by week-end remarks by Chinese Premier Wen Jiabao.

Jiabao helped the Euro when he said “We hope that by intensifying cooperation with you, we can be of some help in your endeavor to tide over difficulties at an early date,” Wen said in a speech to the Greek parliament, according to The Wall Street Journal. “China will not reduce its euro-bond holdings and China supports a stable euro.”

This strong endorsement initially underpinned the Euro until Nobel Prize-winning economist, Joseph Stigliz, warned of sovereign debt threats to the stability of the Euro Region, eroding Jiabao’s bullish spin, and forcing investors to once again face the reality of debt problems in Spain, Ireland and other peripheral nations.

In addition to the Stigliz comments, the Euro was weakened by a further rise in Spanish unemployment.

It was reported last night that Stiglitz said in his book “Freefall” that governments around the world may have attempted to cut deficits too quickly, thereby setting up the possibility of a double-dip recession.

He also warned that the Euro Zone may not survive if competitive tensions continue within the region.

The break this morning in the Euro looks as if investors are paring positions as a precaution against a further acceleration in sovereign debt woes. There doesn’t appear to be any structural damage to the up trend, however, a closing price reversal is developing which could translate into a sizeable correction if confirmed.

Normal profit-taking may also be taking place as the Euro edges toward a major Fibonacci level at 1.3896. Besides a reversal top, a break under a major 50% level at 1.3510 will also be a sign that selling pressure is building.