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December 22, 2012

Daily Forex Fundamentals – December 21, 2012

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

What’s on the Economic Horizon
Canadian monthly GDP to show rebound?
U.S. durable goods orders data due today

U.S. Dollar (USD)

The Greenback’s performance was as mixed as a bag of nuts yesterday as it lost ground to the pound, gained against the euro and comdolls, and ended in a stalemate against the Swissy. Will it be able to find a clearer direction today? Read more…

Euro (EUR)

EUR/USD climbed to as high as 1.3296 and dipped to as low as 1.3189, but at the end of the day, the pair finished just 5 pips below its open price at 1.3241. Likewise, EUR/JPY traded above 112.00 and below 111.00, but it ended the day virtually unchanged at 111.89. Can we expect the euro to change things up today? Read more…

British Pound (GBP)

Talk about resilient! Not even worse-than-expected retail sales figures could sink the pound in yesterday, as it locked in a victory versus the dollar. GBP/USD closed at 1.6284, up 26 pips from its opening price. Read more…

Japanese Yen (JPY)

Was the yen holding its breath awaiting the end of the world? It barely moved yesterday! The Japanese currency ended the day unchanged against the Greenback, euro, Loonie, and Aussie and lost a bit of ground to the pound. Hey, that rhymes! Read more…

Canadian Dollar (CAD)

Thanks to some pretty solid retail sales figures, the Loonie dragged USD/CAD lower, narrowly avoiding a third straight loss against the Greenback. After trading as high as .9897, the pair retreated and fell to .9874, 2 pips below its open price. Read more…

Australian Dollar (AUD)

The Aussie kept going down under yesterday as AUD/USD marked its fourth consecutive day in the red. The pair opened at 1.0493 then closed at 1.0485 as risk aversion gripped the markets yesterday. Read more…

New Zealand Dollar (NZD)

Make that four in a row! Once again, the Kiwi found itself in the losers’ table, as NZD/USD fell another 26 pips to finish at .8339. Will the Kiwi bears make it a complete sweep for the week? Read more…

Swiss Franc (CHF)

With no major data on tap, USD/CHF chilled out and stuck within its average daily trading range. By the end of the day, the pair had formed a near perfect doji on the daily chart, closing at .9119. 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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December 21, 2012

Daily Forex Fundamentals – December 20, 2012

Filed under: Currency Charts — Tags: , , , , — admin @ 1:28 am

What’s on the Economic Horizon

Existing Home Sales Data on Tap
Canadian Retail Sales Due Today
U.K. Retail Sales to Rock Markets

U.S. Dollar (USD)

Mixed results for the dollar, which found itself trading lower versus the euro but managed to eke out wins versus the yen and Australian dollar. With traders about to get ready for the holidays next week, what could be in store for us later today? Read more…

Euro (EUR)

The euro took advantage of U.S. dollar weakness yesterday as EUR/USD ended the day in the green yet again! EUR/USD opened at 1.3220 then closed 26 pips higher at 1.3246 while EUR/JPY reached a high of 112.50 before closing at 111.80. Read more…

British Pound (GBP)

For the fourth time this week, GBP/USD belonged to the bulls as it posted another green candlestick on the daily chart. But it’s starting to look like the bull run is running out of fuel — the market only finished 12 pips above its opening price of 1.6247 after climbing as high as 1.6308! Is it time for a major reversal? Read more…

Japanese Yen (JPY)

And the losing continues! Once again, the yen found itself as the biggest loser in the currency markets, as it lost out against its major counterparts. By the end of the day, USD/JPY was trading at 84.40, up 21 pips from its opening price. Read more…

Canadian Dollar (CAD)

Risk aversion popped its ugly head back in the markets yesterday and triggered a selloff among higher-yielding currencies, including the Loonie. USD/CAD opened at .9854 then closed at .9875 as the lack of progress in U.S. Fiscal Cliff talks dominated the news. Read more…

Australian Dollar (AUD)

Wiped out, baby! After chillin’ above the 1.0500 handle, AUD/USD bulls got blinded by a huge swell and soon found themselves swept back to shore! AUD/USD dropped 37 pips to finish the day at 1.0493. Read more…

New Zealand Dollar (NZD)

The rug was pulled out from underneath the Kiwi yesterday as NZD/USD came crashing down in light of risk aversion. And because of the recently released GDP report, so far, it ain’t showing signs of recovering! Will the Kiwi continue falling? Read more…

Swiss Franc (CHF)

USD/CHF continued to head into bear lair as it slipped another 17 pips to .9120. Meanwhile, EUR/CHF ended the day virtually unchanged at 1.2081 after rallying as high as 1.2103. Where will the markets take the Swissy today? 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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December 20, 2012

2012. The Year that Cried Wolf

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

As we come to the end of 2012 we find that, like a movie, the stresses and strains, the thrills and spills and loose ends are all being tidied up into a relatively happy ending. However, like any blockbuster worth its salt, there are the odd questions left open ready to be picked up again in any sequel (2013). 2012 has seen the resurrection of many dark evils but TMM can’t see one that has actually resulted in the type of global disaster that many tail hedgers had placed their chips on. The European Zombie Dawn has not torn the heart out of the EU leaving it a bloodied corpse as Greece is still in the Euro and Spain has not defaulted. The US is not in recession, China has not had a hard landing, Iran hasn’t been invaded or closed the Gulf, inflation hasn’t gone hyper through QE and, lo, we are all alive and well (if you are reading this after 21st Dec).

TMM would like to summarise 2012 as “The Year that cried Wolf”. Tail hedging became a theme that saw premiums rise rapidly, whether it was straight volatility for tails or the tail risk products such as CDS. But at the end of the year, though there was money to be made by cunning tail risk traders ( as there is with any market that is wildly moving) the underlying events that these products are designed to insure against did not occur leaving the net sellers of tail risk the beneficiaries.  TMM have had some interesting debates with friends about tail risk and we will probably do a post on it soon, but our simplistic view is that if you bet on a 33/1 horse and the price comes into 20/1 then you have made money irrelevant as to whether the horse actually wins or not. And this year saw a lot of betting on ultimate losers. 

This is probably going to be the last post of the year from us but we hope to come back strong in January with our Non-predictions for 2013 and the marking of the 2012 set. We can’t even remember what they were now and daren’t look. For now we leave you with the 2012 Christmas viewing schedule.

2012 Christmas viewing-

“The Shirakawa Briefing”– Staring Matt Damon. A tale of intrigue as one man fights to discover ancient policies shrouded in mystery since the dawn of time. Only he know’s the dark truth and is determined to warn the world of a frightening new plan being plotted by a mysterious organisation known only as the BoJ.

 ”The Fiscal Cliff” prequel to “Into the Void” – Two climbers have to overcome bitter personal resentment and hatred stemming from their disturbed childhoods as political orphans in the House of Representatives in order to overcome adversity and certain death as they face the uncontrollable natural forces of budget control.

“Dead Calm” – A portfolio manager and his Sovereign CDS holdings are becalmed in the once stormy seas of the European markets when they come across a European Central Bank whose story doesn’t tally. The investor is left on a sinking ship hoping that the central bank’s plans fail and his CDS rescues him before he drowns.

“Big Trouble in Little China” – When an All-British fund manager Anthony Bolton agreed  to take his funds to the Asian stock markets, he never expected to get involved in a supernatural battle between good and evil. Bolton’s funds are rich in greenbacks, which make them a perfect target for an immortal bent system and its three invincible state structures. Suffering huge losses, how can Bolton’s funds now defeat data that can’t be seen. 

“Green Card” – A French national leaves France for tax exile in Belgium to much derision from his homeland, only to find that a benevolent Russian President is willing to give him residency with no questions asked. 

“Tom ‘n’ Rog’ll Fix it” – Far East dealers Tom ‘n’ Rog try to make their own dreams come true by fixing it for themselves. However their shady activities catch up with them years later once they think they are immune from capture leading to huge embarrassment and fines for their employer. Unfortunately, unlike the other old “fixer”, they are not already dead and are about to face prosecution for their outrageous crimes. 

“Apocalypse Not Now” – A  website in the US is inundated by true believers of the ZH cult expecting to be rescued by Aliens and long gold positions from a doom writ large in ancient calendars. However when Greece doesn’t leave the EU, Spain doesn’t default, the US doesn’t go into recession and China doesn’t have a hard landing, as the ancient prophecies predicted, they all have to pack up their meagre belongings, having sold everything else, and trudge back to the realities of a normal curve with their “tails” between their legs.

Happy Christmas and a Happy New Year from Pol, Cpmppi and Nemo.

Daily Forex Fundamentals – December 19, 2012

Filed under: Currency Charts — Tags: , , , , — admin @ 1:29 am

What’s on the Economic Horizon

German IFO business climate index seen at 101.9
MPC meeting minutes to shed light on U.K. monetary policy?
U.S. housing starts and building permits on tap
New Zealand to publish Q3 GDP

U.S. Dollar (USD)

Well that was… odd. The dollar got mixed feedback from the markets yesterday, as it gained ground against the comdolls and the yen, but lost ground to the euro and the pound. What’s up with that? Read more…

Euro (EUR)

With risk appetite leading the way, the euro continued its rise up the charts, as it edged higher versus the Greenback. EUR/USD rose 59 pips to finish the day at 1.3220. The only question is, can the euro bulls sustain their momentum? Read more…

British Pound (GBP)

That’s three in a row, fellas! GBP/USD extended its winning streak for the third day in a row as it closed 43 pips above its 1.6204 open price. GBP/JPY also had its share of gains as it ended up almost a hundred pips above its 135.82 open. Read more…

Japanese Yen (JPY)

It looks like the markets are betting on the BOJ to roll out aggressive measures in tomorrow’s rate statement! They dumped the yen like cray-cray, leaving USD/JPY 37 pips higher at 84.19 and EUR/JPY almost 100 pips higher at 111.29. Read more…

Canadian Dollar (CAD)

Consolidation, baby! That was the name of the game for Loonie traders, as we didn’t see have any data to push USD/CAD in either direction. The pair eventually ended the day at .9854, just 11 pips above its opening price. Could we see bigger moves today? Read more…

Australian Dollar (AUD)

This is starting to get boring yo! For the second day in a row, AUD/USD traded very conservatively, not drifting more than 30 pips from its open price. Still, the day belonged to the bears as they managed to chalk up another victory, taking the pair down 17 pips to 1.0529. Read more…

New Zealand Dollar (NZD)

The Kiwi chalked up another day in losses as NZD/USD slipped for the second time in a row. The pair opened at .8442, dipped to a low of .8401, then closed at .8422. Will it be able to recover today? Read more…

Swiss Franc (CHF)

After stalling around its week open price for a day, USD/CHF resumed its slide as it dipped to a low of .9124 then closed at .9137, 42 pips below its open price. How low can this pair 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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December 19, 2012

Daily Forex Fundamentals – December 18, 2012

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

What’s on the Economic Horizon

The RBA Is Worrying About Mining and Employment
Fiscal Cliff Talks Limited the Dollar’s Losses
U.K.’s CPI Due Today

U.S. Dollar (USD)

And the bleeding continues! Though the Greenback was able to put a cork on its losses against the euro and the franc, it still lost to the yen and the pound. Heck, GBP/USD shot up by 49 pips! Did the U.S. reports have something to do with it? Read more…

Euro (EUR)

Not so fast, euro! After a few days of consecutive gains, the shared currency ended up with a tiny loss against the Greenback yesterday as EUR/USD closed 14 pips below its 1.3174 open price. EUR/JPY also ended the day in the red as it landed at 110.31 after starting the week at 111.20. Read more…

British Pound (GBP)

Looks like another streak is in the works, fellas! The pound was one of yesterday’s top performers, as it recorded solid gains against the dollar for the second day in a row. It flexed its muscles and dragged GBP/USD up 49 pips from its opening price to finish just above the 1.6200 handle. Let’s see if it’ll keep climbing today! Read more…

Japanese Yen (JPY)

The yen snatched back some of its losses yesterday after it got aggressively sold off following the weekend elections. USD/JPY fell by 60 pips while EUR/JPY suffered an 89-pip drop. Read more…

Canadian Dollar (CAD)

And that’s the way the Loonie rolls! After a few moments of consolidation and a day of losing to the Greenback, the Loonie staged a strong rally back to the .9840 area on Monday. USD/CAD dipped to a low of .9835 before ending the day at .9843. Read more…

Australian Dollar (AUD)

Ho-hum. The lack of economic reports and trading volume inspired directionless trading for AUD/USD yesterday. The pair dipped to a low of 1.0526 and reached a high of 1.0574 before it capped the day 8 pips lower than its open price. Read more…

New Zealand Dollar (NZD)

The give and take between the Kiwi and the Greenback continues! After posting gains against its American counterpart last Friday, the New Zealand currency ended up giving back some of its pips as NZD/USD slid 18 pips to start the week. Who will come out on top today? Read more…

Swiss Franc (CHF)

We got mixed results from the Swiss franc to start the week, but overall, it wasn’t very impressive. While it lost 4 pips against the dollar and 45 pips against the pound, it snatched up 6 pips against the euro. Let’s see if it can put up a better fight today! 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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December 18, 2012

Daily Forex Fundamentals – December 17, 2012

Filed under: Currency Charts — Tags: , , , , — admin @ 1:28 am

What’s on the Economic Horizon

Draghi to testify about the economy
U.S. FOMC members due to speak
BOJ to announce more stimulus this week?

U.S. Dollar (USD)

The dollar better watch its step this week ’cause it looks like things are getting slippery out there! Last Friday, it slipped against its major counterparts as U.S. data supported the Fed’s easy monetary policy. EUR/USD closed at a new 7-month high at 1.3158 after climbing 82 pips. Read more…

Euro (EUR)

There’s no stopping the euro bulls’ drive! The euro was the least of the evils among the major currencies last Friday when domestic concerns in the U.S. and Japan made the common currency more attractive. Heck, the euro gained against the dollar, yen, AND the pound! Read more…

British Pound (GBP)

After a brief retracement on Thursday, GBP/USD capped off the week with another winning day as it closed 58 pips above its 1.6110 open price on Friday. GBP/JPY also managed to end the week strong as it edged close to the 135.00 handle. Read more…

Japanese Yen (JPY)

Big losses for the yen to start the week! As Japan’s general election results came out, the yen weakened strongly, resulting in huge weekend gaps. EUR/JPY gapped up 140 pips to start the week at 111.20, while USD/JPY jumped 97 pips to begin at 84.42. Will the yen keep falling or will it make up ground? Read more…

Canadian Dollar (CAD)

Down for another day! Better-than-expected Chinese data might have given the Loonie a boost early in the day, but optimism for U.S. Fiscal Cliff developments soon weighed on the higher-yielding currencies and lifted USD/CAD enough to close 12 pips higher than its open price. Read more…

Australian Dollar (AUD)

And the tug-o-war over the Aussie continues! This time, buyers were able to snatch control over AUD/USD as they boosted the pair up 48 pips to 1.0562, practically completely erasing Thursday’s losses altogether. Who will command AUD/USD this week? Read more…

New Zealand Dollar (NZD)

What a stellar week for the Kiwi! After breaking above the .8400 handle during the middle of the trading week, NZD/USD pushed for more gains as it closed near the .8450 mark on Friday. Will it be able to go for more gains this week? Read more…

Swiss Franc (CHF)

Way to go, little Swissy! The Swiss currency pocketed more gains against the Greenback on Friday as USD/CHF slipped below the .9200 mark at the end of the week. Will it continue to trade lower this week? 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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December 15, 2012

Daily Forex Fundamentals – December 15, 2012

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

What’s on the Economic Horizon

U.S. Headline Inflation Rate to Turn Negative?
Euro zone Purchasing Managers’ Index on Deck

U.S. Dollar (USD)

The Greenback got a little bit of reprieve yesterday as it finally able to defend itself against the advances of other major currencies. For the first time in four days, the U.S. dollar index gained. It rose to 80.39 from 80.27. Read more…

Euro (EUR)

Talk about resilience! While most currencies were getting their butts kicked by the dollar, the euro managed to hold its ground pretty well. EUR/USD only slipped 6 pips to 1.3075. Read more…

British Pound (GBP)

Rough day for the pound bulls, who simply couldn’t sustain the momentum it had built from earlier in the week. The question is, will GBP/USD continue to slide lower or will this be an opportunity for the bulls come back in force? Read more…

Japanese Yen (JPY)

The Japanese yen continued to crumble under bearish pressure yesterday as it posted losses against almost all major currencies. EUR/JPY rose to 109.28 from 108.82, GBP/JPY jumped to 134.65 from m 134.41, and USD/JPY climbed to 83.58 from 83.18. Read more…

Canadian Dollar (CAD)

And the Loonie’s winning streak finally comes to an end! The Canadian currency just couldn’t overcome its American counterpart yesterday as traders were spooked by U.S. fiscal worries. After an entire day of trading, USD/CAD finished 13 pips higher at .9852. Read more…

Australian Dollar (AUD)

The Aussie sank like a rock in yesterday’s trading session as “fiscal cliff” talks dampened market sentiment. AUD/USD, which began the day at 1.0565, found itself sitting at 1.0515 by the end of the U.S. trading session. Read more…

New Zealand Dollar (NZD)

Zzzzz… Did all the Kiwi traders go off to watch the Hobbit?! With no hard data lined up, we saw consolidation take over NZD/USD. By the end of the day, the pair was trading at .8428, down just 10 pips from its opening price. Read more…

Swiss Franc (CHF)

Talk about being a party pooper! Instead of rockin’ the markets with comments about the EUR/CHF peg, the SNB chose to focus on its growth and inflation forecasts. As a result, EUR/CHF dropped 32 pips from its opening price to finish at 1.2079. 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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December 14, 2012

Daily Forex Fundamentals – December 13, 2012

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

What’s on the Economic Horizon

U.S. Retail Sales, Producer Price Index, and Unemployment Claims on Deck
Eurogroup Summit Begins Today
SNB Expected to Keep Libor Rate Below 0.25%

U.S. Dollar (USD)

Three strikes and you’re out! For the third straight day yesterday, the safe haven Greenback found itself selling off across the board. The U.S. dollar index, which tracks the performance of the currency versus a basket of other major currencies, fell to 80.27 from 80.52. Read more…

Euro (EUR)

Who just celebrated a three-peat victory against the dollar and the yen? The euro bulls did! Thanks to risk appetite and the Fed’s FOMC minutes, EUR/USD shot up by another 77 pips while EUR/JPY flew by 104 pips. Booyah! Read more…

British Pound (GBP)

Make that three in a row! The pound was able to extend its winning streak against the dollar and the yen for another day as GBP/USD closed at 1.6159 while GBP/JPY ended the day with a 150-pip win. Will these pound pairs be able to keep it up? Read more…

Japanese Yen (JPY)

The yen found itself holding on to the short end of the stick in yesterday’s trading session. It came out as the biggest loser in the foreign exchange market as it was the currency that gave up the most ground to the dollar, the pound, and the euro. USD/JPY climbed to 83.19 from 82.50, GBP/JPY rose to 134.42 from 132.92, and EUR/JPY flew to 108.82 from 107.28. Read more…

Canadian Dollar (CAD)

Canada might not have released any economic report yesterday but that didn’t stop the Loonie bulls from charging! USD/CAD fell by another 26 pips after dropping to an intraday low of .9826. Was the reason for the Loonie’s strength any different from the other high-yielding currencies? Read more…

Australian Dollar (AUD)

Let’s give a round of applause for the Aussie, please! Thanks to the dovish FOMC statement, the Aussie was able to beat the safe haven Greenback to a pulp yesterday. AUD/USD, which began the Asian trading session at 1.0521, finished the day strongly at 1.0565. Read more…

New Zealand Dollar (NZD)

Another rally for the Kiwi! NZD/USD has been climbing all week as it surged past the .8400 barrier then closed at .8439 yesterday. Will this commodity currency be able to hold on to its gains or will it retreat? Read more…

Swiss Franc (CHF)

USD/CHF dove back below the .9300 handle yesterday as the FOMC statement weighed on the Greenback. The pair dipped to a low of .9243 before ending the day at .9258. Will the selling pressure force USD/CHF to break below the .9250 support zone? 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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December 13, 2012

Daily Forex Fundamentals – December 12, 2012

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

What’s on the Economic Horizon
FOMC to extend Operation Twist?
U.K. claimant count change report due today
Swiss ZEW economic expectations to improve?

U.S. Dollar (USD)

Who let the dollar bears out? The Greenback had a losing day against most of its major counterparts, except for the Japanese yen, as higher-yielding currencies racked in plenty of gains yesterday. EUR/USD landed back above the 1.3000 handle as it closed at 1.3004 while GBP/USD closed above the 1.6100 mark. Read more…

Euro (EUR)

The bulls brought their A-game once again yesterday as they managed to extend EUR/USD’s rally for the second straight day. EUR/USD, which began the Asian trading session at 1.2938, closed the day significantly higher at 1.3004. Read more…

British Pound (GBP)

The party ain’t over, boys! Despite the lack of data from the U.K., the pound continued to outperform the dollar and the yen yesterday. GBP/USD 58 pips while GBP/JPY jumped by 62 pips. What the heck motivated the pound traders anyway? Read more…

Japanese Yen (JPY)

The Japanese yen got knocked out in yesterday’s trading as USD/JPY closed 17 pips up from its 82.33 open price while EUR/JPY landed back above 107.00 and closed at 107.28. Will the yen be able to recover today? Read more…

Canadian Dollar (CAD)

It was a very slow day for the Loonie yesterday as only Canada’s trade balance was released. USD/CAD opened the day at .9872 and moved within a very tight 24 tight horizontal channel the entire day. It found resistance at .9881 and support at .9857. Read more…

Australian Dollar (AUD)

Way to go, little guy! The Aussie took advantage of dollar weakness yesterday as AUD/USD rallied above the 1.0500 handle and closed at 1.0521. AUD/JPY had its share of gains as it closed 46 pips up from its 83.33 open price. Read more…

New Zealand Dollar (NZD)

Who’s up for the sixth day in a row? NZD/USD is! The Kiwi bulls charged higher again yesterday thanks to demand for the high-yielding currencies. The pair tipped an intraday high at .8393 before it closed 48 pips higher than its open price. Read more…

Swiss Franc (CHF)

The franc stepped into Loserville yesterday as it lost against its counterparts save for the Greenback. USD/CHF might have slipped by 6 pips, but EUR/CHF had also shot up by 48 pips while GBP/CHF also rose by 29 pips. What gives? 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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December 12, 2012

Who wins the battle between liquidity and instability this time?

Filed under: Currency — Tags: , , , , , , — admin @ 2:24 am

“A funeral eulogy is a belated plea for the defense delivered after the evidence is all in.”

– Irvin S. Cobb

US exports slouched in October. Actually, they tanked so badly the trade deficit widened despite a drop in imports.

Luckily, the Federal Reserve meets today and will announce monetary policy changes and their economic outlook tomorrow.

In light of the dismal export number, the Fed may or may not be thinking “Damn that US dollar.”

Surviving the central bank

After propping up asset markets, the Fed’s unstated goal seems to be devaluing the US dollar to support America’s terms of trade and help the economy grow out of the depression in which it is currently mired. On top of never-ending bond purchases and quantitative easing, the Fed’s extended period of low rates now reaches to the start of 2015.

Since the second quarter of 2011 the US dollar rallied as much as 15%. Currently it’s up 10% from the low last year. This certainly must frustrate Ben Bernanke and Co. Though, admittedly, much of the dollar’s appreciation has stemmed from Eurozone-specific crises that weighed down on the euro.

In the time frame below, it looks as though a head-and-shoulders pattern is looming. If the dollar breaks below the 78-range, the Fed may be given reason to celebrate:

How is a currency to survive a central bank policy like this?

Well, the dollar could hold ground because the rest of the world doesn’t like the Fed’s approach so much. So, to counteract it, they must flirt with similar policies so that their currencies remain competitive and their economies remain stable.

Brazil continues to make a fuss of the loose policies of the developed world. They’ve tinkered with capital controls to keep their economy from blowing up. Thailand has too. But perhaps this trend of capital controls is still in its infancy.

What’s not in its infancy is loose monetary policy among emerging markets.

For starters, Asian economies have been forced to compete with an undervalued Chinese renminbi. And increasingly, developed market outflows stemming from Fed, ECB and BOJ policies are creating stress on developing economies. Further, the low-rate policies of these core economies translates to borrowers in emerging economies even without official rates on emerging market bonds changing.

I took the following chart from a Bank for International Settlements (BIS) paper:

Where global policy finds itself, a return to normal is nearly impossible. And that’s largely because …

The Fed won’t quit

The Fed is widely expected to announce new bond buying tomorrow.

They are determined to keep interest rates low? It begs the question: Why, since levels below the natural rate of interest suppress the market process, obstruct the natural flow of capital, mutate the financial system and lay unavoidable economic land mines?

Because the US financial position is so crummy.

Without low borrowing costs (and lower rates at which the US can service its debt), the US budget could never be considered remotely “sustainable.”

The Federal Reserve has a huge task on its hands. If it means avoiding any potential increase in interest rates, they won’t be giving up anytime soon … no matter how much the rest of the world may want them too.

Liquidity vs. Instability

It all depends on the consensus right now.

The liquidity provided by core central banks is serving to drive down the cost of debt and drive up asset prices. This is the grand theme moving the markets. Perhaps investors believe a truly sustainable recovery can emerge from the oceans of pent-up central bank money.

The risk is if the consensus changes its mind.

While some have long-held beliefs that current policy is not conducive to sustainable growth, other views are emerging to suggest significant global instability is lurking in the shadows of loose monetary policy.

Instability may very well be imminent.

More than two years ago we penned a special report called Currency Wars. In it, we showed the inverse correlation between emerging market investments (e.g. stocks and currencies) and the US dollar. That is: the weak-dollar policy in the US drove capital into emerging markets and caused investors to bid up those riskier assets.

While the Fed’s weak-dollar policy may not have changed, it is certainly long in the tooth. As such, a weak dollar may not be the ultimate outcome going forward. If global instability is imminent, and the consensus recognizes it, you can bet it won’t lead to investors bidding up the riskier assets of emerging markets again.

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