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June 30, 2010

Trichet: Demand at refi lower than some expected

Filed under: Central Banks — Tags: , , , , , , — admin @ 5:31 pm
  • But the three-month operation is normal for the transition that the ECB had in mind
  • See an orderly transition in money market operations
  • Market observers saw today’s result as very good

USD/JPY – Consolidation within Steep Bearish Trend

Filed under: Technical Analysis — Tags: , , , , , — admin @ 4:50 pm

Price action on USD/JPY, a 4-hour chart of which is shown, has recently been entrenched within an accelerated downtrend. Within this downtrend, after price broke down below key support in the 89.00 price region earlier this week, this currency pair has since consolidated in a slightly bullish, flag-like corrective pattern. For more technical analysis on this currency pair, please click here for Wednesday’s (6/30/2010) Chart of the Day.

James Chen, CTA, CMT

* For information on my DVD set, High-Probability Trend Following in the Forex Market, please click here.
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China’s Western disease. Need same medicine?

Filed under: Forex Strategies — Tags: , , , , , — admin @ 4:45 pm

While we may be kicking off a bounce day elsewhere in the world (TMM are dashing off to the plastic surgeons to get new Kevlar fingers fitted for renewed knife-catching), yesterday China started to resemble a car hit by a semitrailer. Equity markets are down again following another huge sell off yesterday and some of the non-Asia-based members of TMM are asking the all important question: how much worse can it get?Perhaps what is most disturbing about this sell-off is that it comes without a significant re-rating of the profitability of most Chinese companies – the forward PE of the A Share Index is not a pretty sight:This is all grist for those believers in the Chanos/Pettis framework which sees China’s “recovery” as a credit bubble that has done little except for goosing Chinese property and bulk commodity prices. The problem TMM have always had with this thesis is that is very heavily dependent upon assuming something notoriously hard to observe: the credit quality of Chinese banks’ loan books and the future willingness or ability of China’s government to fund the banks just lending on to a bunch of rubbish. One of the first things we learned to do as credit tadpoles was due diligence on loans being auctioned out of some of China’s bad banks like Cinda and Huarong. This was a complete waste of time because, after one or two initial deals, all the bidders worked out that these loans were worth 15c on a good day – far shy of the par-ish levels they were marked at or where the bad banks were willing to sell. Since these auctions, very few people in the industry have ever really assumed that marks and provisions at Chinese banks have anything to do with the mundane realities of paying interest and principal on time.

For the most part, then, analysis of Chinese financial institutions seems to have a lot more in common with Kremlinology and the big picture than anything else. China pushing out a lot of equity placements in banks? They probably need the cash pronto. Bank of Communications’ loan books mostly property? Prices up, so who cares? This may seem disgusting to Western analysts of financial institutions but when the data is rubbish, why both wasting reams of paper on one Garbage-In Garbage-Oit exercise after another? There is some halfway decent anecdotal evidence of waste in local government investment vehicles, but the national accounting for local governments is similarly opaque. It’s definitely bad, just how bad is anyone’s guess.

If you assumed all US banks lie about their marks (no comment… ahem…), you could do worse than look at a financial conditions index which normally has a few things in it – TED spreads, equity volatility, credit indices, mortgage rates and some credit growth metrics. On almost any of these metrics, China isn’t looking great. The Shanghai 3month lending rate (SHIBOR) minus the 3month deposit rate is ramping aggressively. And whilst there is debate as to how much influence the Ag Bank IPO is having on SHIBOR, the response has been bigger than is usually the case when there is a large IPO:Credit growth is coming off…

And while property data for China is only marginally more reliable than for loan quality, the indicators are all pretty bad. Add increases in reserve ratios at banks and China looks pretty stressed out with only a moderate amount of tightening. Take a look at the CSI 300 excluding financial and the index doesn’t look too leveraged, at ~33% debt/market cap. Take a look at EBITDA/Interest cover assuming rates rise 200bps – as they have in SIBOR – and about 20% of the index has EBITDA/Interest of >2.5x. Make no mistake, this is a leveraged economy: not because everyone is borrowing at 95% LTV, Interest Only, but because so much of the economy that actually gets loans has wafer-thin margins, produces more than the country can use and can barely make a buck. Remember, these are “central” SOEs that are listed and represent the more solvent government owned enterprises.

With a lot of the government shareholdings having their backs against the wall and banks heavily leveraged to them, what is a quasi-capitalist state to do? One option would be to privatise more, kick out the bad loans and do all that good 1990s Washington Consensus-type stuff (unlike, what the Brussels Consensus has decided to do in Europe…). TMM have their doubts – last time a serious reformer came up in China, called Zhu Rongji, his reformist plans ran into the need to keep steel and aluminium workers employed, ensuring that in the good times, the orgy of capital spending continued, while in the bad times, not much got cut back. TMM does not see any reason why anything has changed in terms of the political pull of central SOEs and their management.

China has clearly got some tough choices to make – either keep up the tightening to rein in a bigger bubble later, or let it rip and hope you can reform corporates while aggravating a property bubble. TMM is of the view that while the longer-run picture of having sectors go from 9-10% ROAs to less than 1% is all bad, there is no reason to bet that China is not capable of turning on the taps, printing the money and stuffing it into the banking system in order to let good times roll.

Who would have thought the Chinese may have to join the global QE program? Who says they aren’t team players?

Video Analysis: Does this one chart line spell doom for the markets?

Filed under: Forex News — Tags: , , , , , , , — admin @ 3:14 am

By Adam Hewison – Make no mistake about it, last week was a very important week for the stock market. Looking on the weekly equity charts, you will see one of the most powerful Japanese candlestick lines. This one line on the chart indicates that there could be some major problems ahead for the stock market.

In my new video I explain what this line is and how it can play out in the short and longer-term time frames.

As always our videos are free to watch and there is no need for registration. I would really like to get your feedback on this powerful formation and what you see for the markets ahead.

Watch the New Video Now…

All the best,
Adam Hewison
President of INO.com
Co-creator of MarketClub

To see more of Adam’s Videos click here or sign up for Adam’s Free 10-part Professional Trading Course.

USDCHF’s downward movement extends to 1.0801

Filed under: Forex News — Tags: , , , , — admin @ 3:10 am

USDCHF’s downward movement extends to as low as 1.0801 level. Resistance remains at the upper boundary of the falling price channel on 4-hour chart. As long as the channel resistance holds, deeper decline is still possible and next target would be at 1.0600-1.0750 area. However, a clear break above the channel resistance will indicate that a cycle bottom is being formed, then minor consolidation of downtrend could be seen.

usdchf

Daily Forex Analysis

Daily analysis and trading strategies 6-29-10

Filed under: Technical Analysis — Tags: , , , , — admin @ 3:06 am

EURUSD

Trading strategy: small short at 1.2300, stop at 1.2370 (0.5% risk), objective at 1.2200

Downside pressure is high again as the euro is falling across the board – printing record lows against the CHF (currently at 1.3305); also near recent bottom against the JPY and below .8200 support against the GBP – testing support levels formed in 2008. Interim support at 1.2250 is in focus at the time of this writing and a break down may weaken the euro further – aiming the more notable barrier at 1.2150. Short-term sentiment is slightly positive but signals of downtrend resumption are becoming more and more clearer. Current exchange rate is 1.2255 @06:10 GMT

Support: 1.2250, 1.2150 and 1.2000
Resistance: 1.2300, 1.2360, 1.2400 and 1.2450/65
Market sentiment: long term – bearish, medium term – bearish, short term – slightly bullish, intra-day – bearish

EURUSD 4hrs chart 6-29-2010
EURUSD 4hrs chart 6-29-2010

Other setups

GBPUSD

GBPUSD hourly chart 6-29-2010
GBPUSD hourly chart 6-29-2010
GBPUSD 4hrs chart 6-29-2010
GBPUSD 4hrs chart 6-29-2010

EURGBP

EURGBP daily chart 6-29-2010
EURGBP daily chart 6-29-2010

EURJPY

EURJPY 4hrs chart 6-29-2010
EURJPY 4hrs chart 6-29-2010

NZDUSD

NZDUSD daily chart 6-29-2010
NZDUSD daily chart 6-29-2010

AUDJPY

AUDJPY daily chart 6-29-2010
AUDJPY daily chart 6-29-2010

Have a great day and happy trading!


© liviu for innerfx.com, 2010. |
Permalink | Post tags: audjpy, eurgbp, eurusd, gbpusd, nzdusd

June 29, 2010 Stock Market Recap

Filed under: Forex Trader — Tags: , , , , — admin @ 2:53 am

On my last recap I wrote about the possibility of the indices still printing higher lows. Well that’s blown out of the water today as the indices made new multi-month closing lows. The S&P 500, which I consider to be the most import index, actually made new lows for 2010 and is now threatening its November 2009 low. I’m NOT calling for a slide to the March 2009 lows but there’s not much technical support between here and there. Assuming the November low breaks, the most solid support I see is the May – June 2009 trading range which was capped around 950.

There’s still certainly the possibility of news creating a bounce though. News out of China took us down today and I’m pretty sure I heard there’s more Chinese economic data due tonight. Not to mention the ongoing European saga which tends to drag our markets around. And it seems like every month I’m talking about how the indices end up at some important technical juncture just in time for the jobs report. Well this time we’re set up pretty well for a rally if the data is the least bit bullish. That’s probably a big “if” given the way things have been going. So I wouldn’t be surprised if we just chopped around until that jobs data hits on Friday.

If we continue to sell off small caps and financials are two areas in which I’d look for shorts. I can see them getting dragged down with the broader market as people scramble out in order to preserve any profits they have left.

Trend Table

Everything is down again…

Trend Nasdaq S&P 500 Russell 2000
Long-Term Down Down Down(-)
Intermediate Down Down Down
Short-term Down Down Down

(+) Indicates an upward reclassification today
(-) Indicates a downward reclassification today
Lat Indicates a Lateral trend

*** I’m simply using the indices’ relations to their 200, 50 and 10-day moving averages to tell me the long, intermediate and short-term trends, respectively.


Goldilocks sees her shadow.

Filed under: Currency — Tags: , , — admin @ 2:25 am

Key News

  • There’s no impulse to buy back euros when the Irish/German, Portuguese/German and Spanish/German 10-year govt bond yield spreads have all widened. (Reuters)
  • Euro zone economic sentiment improved marginally in June after falling sharply in the previous month, as fears eased over the currency area’s sovereign debt crisis. (Reuters)
  • Japan’s industrial output fell 0.1 percent in May and shipments fell by the most in more than a year, suggesting that the benefits of a rebound in exports to fast-growing Asian economies may be moderating. (Reuters)

Quotable

“In every particular state of the world, those nations which are strongest tend to prevail over the others; and in certain marked peculiarities the strongest tend to be the best.”

                          Walter Bagehot

FX Trading – Goldilocks sees her shadow.

Typically when Goldilocks emerges from her bunker, sees her shadow, and returns to the bunker, we can expect six more weeks of recession. But I’d suggest she re-stock her canned foods supply – she could be in there a while.

Catching a glimpse of Goldilocks yesterday gave me a bit of hope. US consumer spending increased again, though slightly slower than the previous month. Personal income rose; disposable income rose; and savings as a percentage of disposable income rose.

Not a bad day.

I keep saying Goldilocks because a report like this pretty much represents the best of both worlds: the government has been focused on getting the US consumer to spend while the US consumer has been focused on deleveraging and saving money. Having the two occur simultaneously is sweet music for the US recovery.

And if the trend continues then we’re in pretty good shape. Unless, of course, the recovery is headed off at the pass by public stimulus efforts and pesky deficits. But let’s leave that alone for now.

We’ve talked about global imbalances. And we’ve talked about how they might imbalance with European growth tanking, the euro tanking and the appeal of then running current account surplus growing. Here is some additional insight from Richard Alford:

In addition, US-based macroeconomists and policymakers are now focusing on and criticizing proposed fiscal austerity in Europe. Their concern is not solely with European economic performance per se. Among their concerns is the perceived impact that European austerity would have on US economic performance. They view demand and income growth in Europe as the means by which the US will reduce its current account deficit. There is little or no mention of any need for the Euro, the Dollar, or any currency other than the Yuan to adjust to promote or support the rebalancing.

These positions reflect interesting wrinkles in US economists’ and policymakers’ mind sets. They are a variant on the old US policy position first espoused by the then Secretary of the Treasury John Connolly: It’s our currency, but it’s your problem. The current version is: It’s our current account deficit, but it’s your problem. Alternative wording of the revised up dated Connolly doctrine: If the rest of the world will just pursue expansionary fiscal monetary policies, then the US can avoid having to choose between austerity and unemployment on the one hand or further increasing unsustainable deficits on the other.

What I’m getting at here is: it may take more than demand from Europe and current current account surplus nations for the US to experience sustainable growth. (The US-tone at the G-20 this past weekend was characteristic of this idea: get other countries to support their economies with stimulus spending because that would help support the US.) In other words, the US needs to spur domestic demand to complement its efforts to grow exports.

Back to Alford (my emphasis):

Calling on our trading partners to increase demand and their imports from the US will not narrow the trade deficit unless there is a narrowing of “the difference between net domestic savings and net domestic investment…”, but US domestic economic policy is not supportive of the required domestic adjustment. Continued deficit financing of stimulus packages widens the difference between net savings and investment. Monetary policy is also geared towards increasing consumption and reducing private savings.

Alford again:

The relative downplaying of the importance of exchange rate adjustment in addressing the US trade imbalance is also troubling. If the US is to correct its external imbalance, resources (capital and labor) are going to have to be reallocated to the production of tradable goods and services. In the absence of Dollar exchange rate adjustments, it is difficult to see reasons why the US economic agents would move into the tradable sector.

Sure, the exchange rate can play a role. But the current value of the US dollar is such that it won’t alone prohibit a move into tradable goods. (Note: the make-up of these tradable goods is important, as the US will not be looking to compete with the low-value stuff we’ve see overflow from China et al.) In fact, the accompanying capital inflows of a strengthening dollar, combined with increased savings, will support the move into production of tradable goods and services.

Basically, we need Goldilocks to stick around for a while. That way we can see the gap between net savings and net investment narrow … with an increase in savings. And we can see domestic demand support our goal of reducing our current account deficit … with an increase in spending.

But we also can’t have the deficit spending and super-lax monetary policy steering the economy back to “business as usual” — bubble-inducing booms and bubble-deflating busts. Capital simply will not reach the desired, sustainable destination if it’s steered by that uncomfortably familiar scenario that created global imbalances in the first place.

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Daily Economic Roundup – June 29, 2010

Filed under: Currency Charts — Tags: , , , , — admin @ 1:30 am

What’s on the Economic Horizon
US Consumer Confidence to Dip in June
Swiss UBS Consumption Indicator on Deck
GfK Consumer Confidence Down to -20?

United States

Ho hum… Price action was a bit dry yesterday as the Greenback refrained from making any big moves against its counterparts. Traders hardly had any reaction to the G20 summit and the economic data released from the US. More…

Euro Zone

The euro started the week off on the wrong side of the bed, as it crapped out against the dollar. EURUSD dropped almost 100 pips from its opening price, to end yesterday at 1.2273. It looks like there are still some euro bears out there after all! More…

United Kingdom

Despite the absence of economic data from UK, the pound was able to gather enough strength to rally across the board yesterday. The pound, which posted significant gains versus the dollar, the euro, and the yen, turned out to be the best-performing currency amongst the major currencies. More…

Japan

Yen trading was as mixed as a bag of nuts yesterday. While it was able to post some gains against the euro and the Aussie, it lost out versus the pound. As opposed to the dollar, well, the yen ended the day barely changed! More…

Canada

Due to the absence of economic reports, USDCAD found itself pacing back and forth with a tight 52-pip range yesterday. The pair ended the US trading session at 1.0355, barely changed from its opening price. More…

Australia

Argh! Don’t you just hate choppy waves when you’re surfing? AUDUSD stayed within range and closed just 12 pips lower for the day. Is it time to just chill by the beach and drink an ice cold beer? More…

New Zealand

Wham, bam, shabam! Unlike its com-doll siblings, the Kiwi took a hit yesterday, as a report indicated that business confidence fell in the past month. NZDUSD finished 50 pips lower to close below the .7100 handle. More…

Switzerland

After starting the day strong, the Swissy eventually retreated and returned some of its gains against the Greenback. As a result, USDCHF rose from an intraday low of 1.0817 and closed at 1.0882. More…

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The Party’s Over!

Filed under: Business — Tags: , — admin @ 12:29 am

This morning we are seeing a slew of consumer confidence figures coming out around the globe which are lower but largely in line with expectations.  The Euro zone debt crisis is continuing to weigh heavily on the markets, and a leading economic index in China had its smallest gain in nearly 5 months, signaling that the Chinese economy may be slowing down.

Later this morning we are expecting consumer confidence figures here in the US as well as housing price figures.  These are expected to come in lower as well, as the removal of the home buying tax credit has caused demand to wane.

Overnight in New Zealand, building permits were lower, and the Japanese jobless rate increased to 5.2%, higher than expected.

This has all contributed to lower equities markets, with US stocks and commodities set to open lower as well.  As a result, we are in risk-aversion mode this morning.  Keep an eye out for the 10AM numbers, as they may be the stock market’s only chance to recover.

Aussie (AUD):  The Aussie is lower as risk aversion is reducing demand for carry trades due to global slowdown concerns, particularly from China.  In addition, the market is looking for the new PM to move quickly on the proposed mining tax, which is seen as “anti-business” and bad for the economy.

Kiwi (NZD):   In addition to risk aversion, the Kiwi is lower as building permits declined 9.6%, the second decline in 3 months.  The Chinese leading index decline is also affecting NZ, as a number of exports go to China as well.

Loonie (CAD): 
  The Loonie is also lower on a classic risk-aversion day, as oil prices retreat on fears of a global slowdown.  Tomorrow will bring the Canadian GDP figures which will show how solid recovery is north of the border.

Euro (EUR):  The Euro is lower this morning, though higher against the commodity currencies.  Fears of the debt crisis have resurfaced, and bank stress tests are to include bank exposure to sovereign debt risk.  This is sure to uncover a land mine or two, and the market is fearful of the size and the scope.  However, business confidence came in higher than expected as a lower valued Euro should encourage exports.

Pound (GBP):  The Pound is lower as well on risk aversion, though it is still above 1.50 vs. USD.  Mortgage approvals came in slightly lower than expected, but expect the Pound to fare better than the Euro as GDP figures are due out tomorrow.

Dollar (USD):   The Dollar is catching a bid from risk-aversion and is higher against all but the Yen.  Consumer confidence figures are due out at 10AM EST and they may be the stock market’s last hope for a turn-around today if the numbers are better than expected.  Home price figures came in slightly better than expected, most likely due to the tax credit.  Today looks ugly for stocks, which should mean continued dollar strength.

Yen (JPY):   The Yen is higher as the rapid unwind of carry trades is driving demand for the Japanese currency despite the fact that industrial production and household spending fell.  In addition, unemployment ticked higher to 5.2% vs. an expectation of 5% in a sign that recovery is clearly slowing down.

Well, we knew it was only a matter of time before this global charade was exposed as unsustainable and now the market is starting to realize that it may be time to pay the piper.  Obama’s pleas at the G-20 fell on deaf ears, and governments outside of the US have decided that it’s better to cut bait than to try to continue to fish.

In other words, countries are trying to cut their losses and get back to economic health.  The only way to do this by taking the “medicine” of financial austerity and debt reduction.  This is going to be one heck of a hangover, as now the party may be finally over.

However, all is not lost and I am not trying to be a doomsday forecaster.  There are definitely pockets of strength in our economy, including corporate America.  All of the lay-offs of the past have allowed corporations to increase profitability, and many are trading at low multiples.

However, it is definitely time for people to wake up.  The eventual fallout and backlash against our big-spending government will only bring about better policy in the future.  Government, no matter what type of social engineering they try, CAN NOT control economic cycles.  The longer they try to pro-long an unnatural order, the worse the pain will be.

Usually the “summer slowdown” takes effect, though this time it may be different.  I expect there to be heightened volatility as the world navigates the treacherous waters of the global economy.   Expect there to be highs and lows, as well as gains and set-backs.

There is no better time than RIGHT NOW to protect yourself from global economic conditions through the forex market!  Don’t be one of the ones left standing when the music stops!

To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!

To follow these events live with a free, real-time practice account, click here!  Don’t miss out on the world’s fastest growing market!

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