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May 31, 2011

Aussie is Breaking Away from Kiwi

Filed under: Australian Dollar — Tags: , , , , — admin @ 11:33 pm

The correlation between the Australian Dollar and New Zealand Dollar is among the strongest that exists between two currencies. Given their regional bond and similar dependence on commodities to drive economic growth, perhaps this is no wonder. Over the last year, however, the Aussie has slowly broken away from the Kiwi. While the correlation between the two remains strong, the emergence of distinct narratives has given rise to a clear chasm, which can be seen in the chart below. Given that the NZD is evidently among the most overvalued currencies in the world, does that mean the same can be said about the AUD?

Alas, geographic proximity aside, the two economies have very little in common. Australia is rich in coal, precious metals and other natural resources , while New Zealand produces and export primarily agricultural products. Granted, the prices for both types of commodities have exploded over the last decade (and especially the last year), but let’s be clear about the distinction. This has enabled both economies to achieve trade surpluses, but oddly current account deficits. Australia’s economy is projected to grow by more than 4% in 2011, compared to 2% in New Zealand. Australia’s benchmark interest rate is also higher, its capital markets are deeper, and the supply of its currency necessarily exceeds that of New Zealand.

Taken at face value, then, it would seem commonsensical that the Aussie should rise both against the Kiwi and the US Dollar. Indeed, it recently touched an all-time high against the latter, and is now firmly entrenched above parity. On a trade-weighted basis, it has been among the world’s best performers over the last two years.

In fact, some are wondering (myself included), whether the Australian Dollar might have risen too much for its own good. According to OECD valuations based on purchasing power parity (ppp), the Aussie is now 38% overvalued against the dollar, behind only the Swiss Franc and Norwegian Krone. In fact, exporters of non-commodity products (i.e. those whose customers are actually price-sensitive) have warned of mounting competitive pressures, declining sales, and inevitable price cuts. In other words, the portion of the Australian economy that doesn’t deal in commodities is actually in quite fragile shape. Given that China’s economy is projected to slow over the next two years and that booming investment in Australia’s mining sector should boost output, the commodity sector of the economy might soon face similar pressures.

For that reason, the Reserve Bank of Australia (RBA) has avoided raising its benchmark interest rate is fast as some analysts had expected, and inflation hawks had hoped. There is a chance for a 25 basis point hike as soon as June – bring the base rate to an even 5% – but the RBA’s own statements indicate that it probably won’t be until June and July. Regardless of when the RBA tightens, Australian interest rate differentials will remain strong for the foreseeable future, and likely continue to attract speculative inflows for as long as risk appetite remains strong.

So why does the Australian dollar continue to rise? It might have something to do with gold. As you can see from the chart above, the correlation between the Aussie and gold prices is almost just as strong as the relationship between the Aussie and the Kiwi. Given that Australia is the world’s second largest gold exporter, it is perhaps unsurprising that investors would see rising gold prices as a reason for buying the Australian dollar. However, it seems equally possible that demand for both is being driven by the pickup in risk appetite. While some gold buyers might counter that gold is best suited for those who are averse to risk (i.e. afraid that the financial system will collapse), the performance of gold over the last five years suggests that in fact the opposite is true. When risk appetite is high, speculators have bought gold and the Australian dollar (among other assets).

It’s unclear whether this will remain the case going forward. The Wall Street Journal recently reported that gold is increasing attracting risk-averse investment, as buyers fret about the eurozone sovereign debt crisis and other threats to the system. However, the same cannot be said about the Australian Dollar. For as long as risk is “on,” demand for the Aussie will remain intact. And if the Aussie Dollar Barometer survey – which found that “exporters expect the Australian dollar to reach a post-float record of $US1.16 by September and to remain above parity well into next year” – is any indication, risk appetite will indeed remain strong for the foreseeable future.

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Why not start trading end of day?

Filed under: Forex General — Tags: , — admin @ 5:37 pm

One of the biggest issues I see with most people who start trading the forex market is that they think it’s easy and it’s ripe for the plucking.

People are sold on the hype that millions can be made in a matter of minutes and that they can be a part of the action 24 hours a day 7 days a week.

Unfortunately the very thing that allures traders into the forex market ends up being their very downfall! Much like how the seamen were allured by the seducing sirens – only difference being that man doesn’t need to sail the high seas anymore, they let the sirens come right in!

Generally when people ask me where they should start trading I tell them that they should start trading the forex market using very little leverage (start 1:10) and on an end-of-day basis only.

Of course, nobody wants to hear that.

“But what about my millions?” they ask, flabbergasted.

It takes time and it takes effort and if anyone tells you any different RUN (don’t walk) the other way.

Forex trading is tough and while it might seem as though you can make millions in a day, you can just as easily lose everything too. I’ve seen it time and time again. If you can pull yourself away from the dazzling lights of your forex trading platform and concentrate on putting your energies into refining a better trading strategy then you’ll have better hope.

Staring in front of a computer all day will only allure you.

Trade end-of-day. Then, if your forex trading ride becomes painful it will become a lasting memory rather than a quick sharp burn for the idiot who decided they could do it trading intraday.

If you can’t make it trading end-of-day forex, what hope have you going intraday?

NZD/USD Rising Wedge Continuation

Filed under: Currency Charts — Tags: , , , — admin @ 3:43 am

For traders who read my May 18 update on why I’m bullish on the NZD/USD, here’s an alternative, intraday set up to take advantage of a rally.

5-25-2011 7-19-25 PM.jpg

The NZD/USD is trending higher but the transition is fresh.The Rising Wedge is shallow but could provide 1) near-term support for a push higher or 2) a near-term rally through the uptrend line resistance. Either way this pattern is positioned perfectly to be a litmus test for the 240-minute NZD/USD uptrend. Chart pattern alert courtesy of Autochartist.

The resistance along the 0.8000 level will present a particular challenge to NZD/USD bulls however a break through a “00” can attract more buying momentum and that’s partially what will be needed. What else? Add to that a U.S. Dollar breakdown through 76.00 and higher commodities prices through either an equities rally or dollar weakness and the NZD/USD will propel higher continuing what has mostly been a two-month rally before the recent mid-May consolidation.

The support of the pattern has three levels to rest on: The support of the 34EMA Wave and the uptrend line support at 0.7900 and the”00″ major psychological level itself.

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Bank of Canada Rate Decision Due Tuesday

Filed under: Forex News — Tags: , , , , — admin @ 3:15 am

Early indications are that the Canadian dollar could decline ahead of tomorrow’s Bank of Canada interest rate announcement. Despite recording a 3.9 percent increase in Gross Domestic Product for the first three months of the year, most observers expect Governor Mark Carney to announce that the Bank of Canada will not raise rates beyond the current 1 percent. This could have investors selling the dollar for currencies offering higher yields.

While few expect a rate increase, close attention will be paid to Carney’s statement in the hope that the Governor will provide a signal as to when he expects rates to increase. Most analysts feel that October is the earliest we can expect the Bank to introduce a rate hike as the short-term forecast is for the Canadian economy to slow slightly from the first quarter’s robust pace.

It was not that long ago that market participants were convinced that Canada was about to enter a period of sustained rate increases. Indeed, starting last June the Bank did introduce three successive quarter point rate hikes but the policy was abandoned after the Canadian economy slowed faster than expected.

Despite this, the Organization for Economic Co-operation and Development (OECD) recently urged the Bank of Canada to return to a policy of rate hikes. The OECD believes that Canada’s interest rate is currently too low and as a result, borrowers are taking on debt levels that would otherwise be beyond their means. Should these rates rise significantly later on, the OECD warns that a dramatic rise in the default rate is likely and this could place the Canadian economy at risk.

Scott Boyd is a currency analyst and a regular contributor to the OANDA MarketPulse FX blog

USDCAD broke below 0.9743 support

Filed under: Forex News — Tags: , , , , — admin @ 3:12 am

USDCAD broke below 0.9743 support, suggesting that a cycle top had been formed at 0.9816 on 4-hour chart, and lengthier consolidation of uptrend from 0.9444 is underway. Further fall is expected later today, and target would be at 0.9650-0.9700 area. Resistance is at 0.9816, only break above this level could signal resumption of uptrend.


Forex Analysis

Thursday Links 5/26/11

Filed under: Technical Analysis — Tags: , , — admin @ 3:05 am

Today’s links:
20 Questions To Ask Anyone Foolish Enough To Believe The Economic Crisis Is Over (Economic Collapse Blog)
Europe’s Dispute on Crisis Intensifies (WSJ)
The Fed Behind The Greatest Fraud In History (International Forecaster)
Trichet Steadies the EURO For Now (Oanda)
China’s hidden debt (Macro Business)
Blood at Scene Becomes Pivotal for Strauss-Kahn Defense (Bloomberg)
Presenting DSK’s Brand New $14 Million Tribeca House Arrest Palace( Zero Hedge)
Euro Surges On News Chinese White Knight To Make Repeat Appearance, Attempt To Bail Out Europe For Second Time (Just As Unsuccessfully) (Zero Hedge)
Fukushima May Become Graveyard for Radioactive Waste From Crippled Plant (Bloomberg)
ECB “Basically Trapped” by “Horror Scenario” of Greek Read More

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Article Source | Post tags: banksters, China, debt, Dominique Strauss-Kahn, Euro-zone crisis, Fukushima Nuclear Plant, Greece, inflation, Japan, Keynesian economics, LinkedIn, nuclear reactors, social media, Trichet

Daily Forex Fundamentals – May 30, 2011

Filed under: Currency Charts — Tags: , , , — admin @ 1:27 am

What’s on the Economic Horizon

U.S. Non-farm Payrolls This Week
Canada’s March GDP to Turn Positive

U.S. Dollar (USD)

For the fourth straight day last Friday, the dollar found itself on the back foot as it trailed behind other major currencies. The U.S. dollar index, which measures the performance of the dollar versus a basket of currencies, stumbled to 75.35 after it had opened the Asian trading session at 76.00. Ouch! Read more…

Euro (EUR)

“I just can’t get enough…” The euro bulls did a Black Eyed Peas number last Friday when they pushed the euro higher against most of its pip comrades. Though EUR/CHF slipped by 61 pips to 1.2181, EUR/USD climbed by a whopping 149 pips to 1.4286. Meanwhile, EUR/GBP also inched by 46 pips higher to .8668. Read more…

British Pound (GBP)

My my, look at the pound fly! GBP/USD reached a high of 1.6509 last Friday as the U.S. dollar sold off like pancakes on a state fair. In fact, cable jumped by almost 450 pips from a low of 1.6060 last week. Can the pound keep up its winning streak this week? Read more…

Japanese Yen (JPY)

The yen’s price action against other major currencies last Friday was as mixed as bag of Trail Mix! The yen was able to close the U.S. trading session higher versus the dollar, but fall against everything else. EUR/JPY, for instance, ended Friday 51 pips higher at 115.51. Read more…

Canadian Dollar (CAD)

*Yawn.* USD/CAD’s 50-pip range was tighter than Happy Pip’s tutu last Friday when the lack of economic reports from Canada extended the pair’s move from Thursday. The pair dropped to an intraday low of .9753 before closing with a 13-pip loss at .9774. Read more…

Australian Dollar (AUD)

Give the Aussie a round of applause folks, as it was able to score another win! Thanks to the prospect of further loose monetary policy from the Federal Reserve, AUD/USD was able to rise in the charts and close the U.S. trading session 63 pips higher at 1.0693 last Friday. Read more…

New Zealand Dollar (NZD)

Talk about record-breaking! The Kiwi made new highs against the U.S. dollar last Friday, boosted by news that China would be investing in New Zealand. NZD/USD broke above the .8100 area and reached a high of .8199 that day. It even gapped higher over the weekend, which means we might see more Kiwi strength this week. Read more…

Swiss Franc (CHF)

The Swiss franc showed that it was never too early to start the party as it grooved to Taio Cruz’s “Higher” during the wee hours of the Asian session last Friday. USD/CHF fell by more than a hundred pips from the .8650 area while EUR/CHF sank below the 1.2200 mark. How much higher can the Swissy go? Read more…

Bonnie and Clyde, peanut butter and jelly, Justin Bieber and his hair. Some things just go well together.

In forex trading, you get better odds at securing pips when your fundamental analysis is complemented by technical analysis.

Head on to Big Pippin’s Daily Chart Art for some pip-locking technical setups!

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Fiat to buy Treasury’s stake in Chrysler

Filed under: Business — Tags: , , , — admin @ 12:20 am

Now’s the Time for Bank Stocks

Filed under: Investing — Tags: , , , — admin @ 12:00 am

The Most Expensive Stock in America

Filed under: Investing — Tags: , , , — admin @ 12:00 am
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