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WEEKLY OUTLOOK - Week of March 27, 2011

noreply@blogger.com (MSII) — Wed, 30 Mar 2011 08:15:00 +0000

Highlights
Risk appetite stays resilient
Rate expectations driving the euro amid a deteriorating periphery
Storm clouds gather on the UK’s economic horizon
Is AUD strength here to stay?
Key data and events to watch next week
Risk appetite stays resilient

Despite the global tumult from Japan, Libya, Portugal and elsewhere, investors seem to be embracing risk on the basis that the global recovery is on-going, as we suggested in last week’s update. The S&P 500 stock index in the US has regained about ¾ of the decline since Feb. while the Nikkei 225 in Japan has recouped just over half its post-tsunami collapse. The CRB commodities index has also regained about ¾ of recent declines. And the drop in US Treasury yields has now reversed sharply over the past week, with 10-year yields now up around 30 bps from recent 3.15% lows reflecting both reduced safe haven buying and increasing talk from Fed officials that QE3 is not on the table. We expect other Fed speakers to echo this sentiment and so we reckon with a further back-up in US rates.

Normally, a risk-on environment is frequently USD-negative, but against the backdrop of rising US rates, the buck may fare a bit better. In particular, we look for JPY-cross strength to re-emerge in the weeks ahead, barring any other unforeseen global calamities. Higher JPY-crosses, like AUD/JPY, CAD/JPY and EUR/JPY, could result from USD weakness against all but the JPY, with higher US rates supporting a higher USD/JPY. We will keep an eye on recent range highs in those JPY-crosses and a break above them will be a signal to us additional gains are in store.

Next week’s action will be dominated by month-end liquidity and asset manager reallocations, so the price action could remain extremely choppy in the USD pairs, so we suggest paying extra attention to the JPY-crosses, which may display more of a trending pattern. Next week concludes with March US employment data and we expect the report to be generally positive for risk sentiment in that job creation has reached more supportive levels, though still not enough to seriously dent the unemployment rate.

Rate expectations driving the euro amid a deteriorating periphery

This past week, the euro shrugged off seemingly negative developments and continued its ascent despite ratings downgrades in the periphery and a delay in concrete policies regarding the short term EFSF. The longer term ESM will still accumulate 80B euro in paid-in capital, however the payments have been stretched to 16B euro per year over 5 years. S&P downgraded Portugal’s rating which came after a downgrade by Fitch and the downgrade of 30 Spanish banks on Thursday did little to weigh on the common currency.

The rejection of the Portuguese austerity plan not only raises uncertainty about the government with the resignation of Prime Minister Socrates but greatly increases the likelihood that the nation will require a bailout. The EU’s Juncker stated, “the uncertainties concerning Portugal aren’t unknown uncertainties,” and noted “if ever the Portuguese government decided to ask for European aid, the instruments are now at hand to help Portugal”. Talk of austerity and contracting GDP in the periphery did little to change investors’ views on monetary policy as the debt concerns appear to be compartmentalized.

Several ECB officials have recently stated that the bank maintains a clear separation between its monetary policy and unconventional liquidity measures. As such, the market remained focus on inflation and ECB rate expectations which continued to drive the euro higher. A rate hike at the next ECB meeting in April is largely priced in and as such the risks are to the downside. Following the April ECB decision, slower overall growth or lower levels of inflation may deter the bank from starting a tightening cycle and may be met with euro selling.

The market is currently anticipating about 100bps in rate increases over the next 12 months. Technically, the 1.4250/80 area is the highs of November ’10 and March ’11and remains the key resistance level to the upside. A sustained break above here is needed to see further upside potential. The daily Tenkan line currently comes in around 1.4050 and may provide support ahead of the psychological 1.4000 figure. Below here may see a deeper correction towards the Kijun line which is currently around the 1.3885 area.

Storm clouds gather on the UK’s economic horizon

It’s a quieter week for the UK after last week’s Bank of England minutes, a Budget and retail sales dominated the headlines. All three weighed on the pound, which is set to drop more than 1 per cent on a broad based basis at the week’s close.

Two things are dragging the pound lower: firstly, a deterioration in the economic outlook and secondly, a narrowing of the UK’s interest rate differential as investors start to price out the chance of near-term rate hikes from the Bank of England. For example, the market now expects the first hike in August, previously this had been May.

The growth outlook included in Wednesday’s Budget was revised lower for this year to 1.7 per cent, but the risks are to the downside. Fiscal consolidation and the harshest public spending cuts since World War Two don’t get going with a real gusto until this year, yet growth is already starting to falter. Retail sales fell by 1 per cent in February, dragging the annualized rate to a meager 1.2 per cent. This is lackluster at best and extremely worrying for an economy that relies on consumption for 70 per cent of its growth.

From April everyone who works in the UK will be subject to a higher rate of social security and the 40 per cent tax rate also kicks in earlier at GBP35, 000, compared with GBP37, 400. This is going to add to the squeeze on household incomes and further dents the growth outlook.

Added to this, although the Budget figures suggest that the UK will reach its long-term fiscal targets to virtually eliminate the deficit by 2015/16, because of the UK’s elevated headline inflation rate borrowing will be higher next year. The problem with the UK’s inflation is that it isn’t feeding into wage growth, so income tax revenue has not been increasing as one expects during periods of high inflation, yet social welfare payments and pensions are all indexed to consumer prices, which is aggravating the weak public finances.

Chancellor Osborne is sticking to his guns and continuing with his ambitious fiscal targets for this parliament. But if a slowdown in growth triggers a delay in the UK’s debt reduction plans the its sovereign credit rating will be threatened, Moody’s the credit rating agency warned last week. Osborne is keen to avoid this, so whichever way you look at it storm clouds are gathering on the UK’s economic horizon.

While Budgets tend to have muted impacts on financial markets, the pound’s decline was initially fuelled by the minutes of the last MPC meeting. Committee members voted 6-3 to keep rates on hold earlier this month, so the hawkish threesome had failed to draw anyone to their side. More interesting was the uncertain tone to the minutes, which suggests that the MPC are firmly in wait-and-see mode until they get a clearer picture for the outlook for growth.

This was reinforced when Spencer Dale, the Bank of England’s chief economist who voted for a rate hike earlier this month, said that he could be persuaded to swing his vote away from a rate hike if the recovery disappoints.

This has weighed on sterling crosses, especially EURGBP. Currently the market is pricing in nearly 100 bp of rate hikes in the Euro-area over the next 12 months, which compares with 75 basis points for the UK, boosting the cross. If we get a weekly close above 0.8810/20 then 0.8900 – the October highs come into focus before 0.9150 – the March 2010 high.

Is AUD strength here to stay?

AUD/USD strengthened to record post-float levels just short of the 1.0300 figure as risk stabilized into the close of the trading week. Subsiding concerns over Japan’s nuclear crisis played a role in broad based commodity upside this week and subsequent AUD strength. However, recent Aussie strength has also been driven by improving risk sentiments on the back of optimistic global growth prospects stemming from declining tightening expectations on a global basis, sans ECB.

Expectations for an RBA hike have been gradually scaled back with some market participants now expecting tightening to begin as late as Q1 2012. At the surface, it seems contradictory that the possibility of a less rapid appreciation in an economy’s target rate would see a concurrent strengthening to its respective currency. However, the situation in Australia and its surrounding region is quite complex. The near term growth outlook in China remains firm while Japan’s near term outlook seems bleak. Japanese Q2 ’11 GDP is likely to suffer directly from production disruptions as a result of the earthquake.

However, medium term Japanese growth may rebound as rebuilding efforts are likely to have an inflating effect on Q4 Japanese GDP. The significance of this potential scenario lies within the realm of coal. 2H 2011 Japanese coal demand is likely to firm due to reconstruction efforts but coal demand on a global basis may benefit further from mounting public and political pressures as a result of the recent nuclear crisis in Japan. As Australia is one of the world’s top coal producers, expectations for firm 1H 2011 coal demand out of China and the potential for even firmer demand in 2H 2011 have also played a role in record AUD strength.

The main risk to extended Aussie strength, however, is Aussie strength itself. Higher coal prices may see Australia’s terms of trade reach record levels and should eventually pressure the RBA to restart a tightening cycle. While developed economies are behind the curve relative to emerging market economies in terms of tightening, higher commodity prices for extended periods is likely to see developed economies eventually play catch up – including the RBA. The likely result of semi-coordinated global tightening direction in response to higher prices may weigh on AUD as rate differentials may remain near current levels but commodity demand may see substantial declines.

We think near term AUD/USD strength may continue considering recent risk stabilization as well as the technical breakout above prior post-float highs. However, we maintain a cautious medium to longer term AUD/USD outlook on the potential for commodity demand deterioration resulting from central bank policy responses to higher prices.

Key data and events to watch next week

Unites States:

Monday – Feb. PCE, Feb. Personal Income & Spending, Feb. Pending Home Sales, Mar. Dallas Fed Manufacturing Activity, Fed’s Lockhart, Evans and Rosengren Speak

Tuesday – Fed’s Bullard Speaks, Jan. S&P/CaseShiller Home Price Index, Mar. Consumer Confidence

Wednesday – Mar. MBA Mortgage Applications, Mar. Challenger Job Cuts, Mar. ADP Employment Change, Weekly DOE U.S. Crude Oil Inventories, Fed’s Bullard, Lacker and Hoenig Speak

Thursday – Weekly Initial Jobless & Continuing Claims, Mar. Chicago PMI, Feb. Factory Orders

Friday – Mar. Employment Report, Fed's Plosser Speaks, Feb. Construction Spending, Mar. ISM Manufacturing & Prices Paid

Euro-zone:

Tuesday – German Apr. GfK Consumer Confidence, ECB’s Mersch Speaks, German Mar. Prelim. CPI

Wednesday – Mar. EZ Consumer, Economic, Industrial and Services Confidence

Thursday – German Mar. Unemployment Rate, Euro-Zone Mar. CPI

Friday – EZ Mar. final PMI Manufacturing, EZ Feb. Unemployment Rate

United Kingdom:

Tuesday – 4Q Final Total Business Investment, 4Q Current Account, 4Q Final GDP, Feb. Net Consumer Credit, Feb. Mortgage Approvals, Feb. M4 Money Supply

Wednesday – Jan. Index of Services, Mar. CBI Reported Sales, Mar. GfK Consumer Confidence

Thursday – Mar. Nationwide House prices

Japan:

Tuesday – Feb. Jobless Rate, Feb. Retail Trade, Feb. Large Retailer Sales, Mar. Small Business Confidence

Wednesday – Feb. prelim. Industrial Production

Thursday – Mar. Manufacturing PMI, Feb. Labor Cash Earnings, Feb. Housing Starts, Feb. Construction Orders

Friday – 1Q Tankan Large All Industry Capex, 1Q Tankan Outlook

Canada:

Monday – BoC’s Boivin Speaks

Wednesday – Feb. Industrial Product Price, Feb. Raw Materials Price Index

Thursday – Jan. GDP

Australia & New Zealand:

Tuesday – NZ Finance Minister English Speaks, NZ Feb. Imports, Exports and Trade Balance

Wednesday – NZ Building Permits, AU Mar. DEWR Skilled Vacancies, AU Feb. HIA New Home Sales, AU Feb. Job Vacancies

Thursday – AU Feb. Building Approvals, AU Feb. Retail Sales, AU Feb. Private Sector Credit, RBNZ Mar. Activity Outlook & Business Confidence

Friday – NZ 4Q Manufacturing Activity, AU Mar. Performance of Mfg Index, Mar. RBA Commodity Price Index

China:

Friday – Mar. PMI Manufacturing

WEEKLY OUTLOOK - Week of March 13th, 2011

noreply@blogger.com (MSII) — Mon, 14 Mar 2011 23:31:00 +0000

Highlights
EU competitiveness pact may disappoint
Fallout from Japanese earthquake
Spain gets a wakeup call
Central banks expected to maintain policy rates
A mixed picture in China, but further tightening is still needed
Key data and events to watch next week
EU competitiveness pact may disappoint

Without the final details in hand as of late Friday afternoon, we can’t be sure of the ultimate reaction, but price moves ahead of the release of the EU pact suggest markets are going to be underwhelmed. The draft of the pact suggested that no concrete rules will be established and that individual governments will operate on a ‘best efforts’ basis to rein in debts and deficits and stimulate growth. The only enforcement mechanism will be discussions between member states. If the final pact follows these outlines, markets are more likely, in our view, to voice disapproval. Indeed, in the run-up to Friday’s summit, peripheral-EU bond spreads widened to near crisis peaks from last year, suggesting many still expect defaults and restructurings to follow. Alongside threats to the global recovery emanating from MENA and China, and now Japan, we think the downside for the Euro is vulnerable and we will view a break below the 1.3730/50 daily Kijun line/weekly low/21-day mov. avg. as an indication of a Euro likely headed back toward 1.3500/50 in the near-term. Should the pact contain more disciplined measures, then we would expect to see some further recovery in the single currency, but think it should remain below 1.4000, as growing risk aversion limits the upside.

Fallout from Japanese earthquake

The massive earthquake and tsunami in Japan on Friday undermined risk sentiment further and this led to JPY-strength as JPY-shorts were rapidly covered. There has been talk of Japanese repatriation of funds to cover insurance costs, but we think this is likely overstated and that risk aversion is the better explanation. The tragedy there is still unfolding, with additional earthquakes registering through Friday night, and no estimates of damage costs are available at the moment. However, given the largely agricultural nature of the affected region, we don’t think the impact to Japanese GDP will be especially severe, but that’s not saying much as Japanese growth already turned negative in 4Q. While we think the near-term pressure will remain on USD/JPY, we don’t think the pair will test the pivotal 80.00 level and seems most likely to find a base in the 80.50/81.50 area in coming weeks. We think the MOF will seek to avoid a further surge in the JPY which would add fresh burdens to the Japanese recovery. The BOJ is meeting at the start of next week and may announce emergency measures such as additional asset purchases, which could see the JPY weaken sooner. The government will also likely soon pursue a supplementary budget to pay for clean-up and reconstruction, and this may revive fears over the size of Japan’s debt burdens and also cause the JPY to weaken.

Spain gets a wakeup call

There are growing signs that the market is losing patience with the EU authorities who have failed to come up with a credible, long-term solution to the region’s sovereign debt crisis. As EU leaders gathered for a summit in Brussels at the end of last week, the markets had low expectations that an effective solution would be found. Bond yields spiked to euro-era records for Ireland and Portugal; Spain and Italy were not immune either as the risk premium to hold their government debt also increased.

The downgrade of Spain’s sovereign credit rating by Moody’s to Aa2 from Aa1 at the end of last week focused the markets’ attention back on Europe’s troubled banking sector. A third round of bank stress tests is scheduled to be conducted in the next few months. On 18th March the EU authorities will publish the macro economic scenarios and the sample of banks that will undergo the tests. This is key for the market as it will determine whether the tests are strong enough to really give a true snap shot of the bad debts and recapitalization needs of some of Europe’s most troubled lenders, particularly the Spanish Caja banks. More details will follow in April when the stress test methodology is disclosed and then in June when we finally get the results.

There is no doubt that the EU authorities have made a hash of dealing with their financial problems. It has taken three rounds of stress tests to try and make sense of the bad debts still swimming in Europe’s financial system.

Investors will only be happy once they know exactly how bad the problems are. When the US published devastating results of their bank stress tests in 2009 it was greeted warmly by the markets and led to a stock market rally. Investors will only be happy to hold assets from Europe’s periphery if they can accurately calculate the risk of doing so. Right now they are guessing that things are worse than the authorities are saying, hence bond yields are rising to unsustainable levels. If the truth was out there then bond yields may even start to moderate. Until the full extent of the debt crisis is known there can be no remedy. If the results of the tests are published in June, then a solution is unlikely to be found until the end of the year.

By that time Portugal is most likely to have applied for bailout funds, while Spain just about avoids doing so. But there is a lot of pressure on the larger of the two Iberian nations. Although debt issuance in 2011 is only about 80 per cent of what it was in 2010, Spain still has to tap the markets for an enormous EUR600bn or more for the rest of this year. Doing so at the same time as the bank stress tests are taking place could test investors’ patience. If Spain’s banks require significantly more capital than the EUR 20bn the Spanish authorities have disclosed then its debt could be significantly harder to sell to foreign investors who have already been cutting back on their exposure to the weaker Eurozone states.

The euro has brushed off sovereign debt woes in the past, but they are increasingly weighing on the single currency. It fell back to the 1.3800 level versus the dollar at the end of last week, and the key 1.4000 resistance level is unlikely to be broached for the time being. Technically EURUSD is still in an uptrend above 1.3535 – the top of the Ichimoku cloud, but it has fallen sharply and if we don’t get a bounce somewhere between 1.3600 and 1.3700 then we could see a sharper decline over the coming months, especially versus the greenback.

Central banks expected to maintain policy rates

Several central banks will meet to determine policy in the week ahead. The Federal Open Market Committee (FOMC) will meet on Tuesday March 15, the Norges Bank will meet on Wednesday March 16, and the Swiss National Bank (SNB) is scheduled to meet on Thursday. All of these banks are expected to keep policy rates on hold with the Norges Bank the most likely to surprise with a hike, however we do not anticipate a move on rates.

In the U.S., the Fed has maintained the language that the bank will keep rates low for an ‘extended period’ and the large scale asset purchase program of $600B through June has a ‘high hurdle’ before altering the plan. While the unemployment rate has dropped slightly, labor data suggests that the recovery may not yet be self-sustaining. Additionally, the CPI has ticked upwards slightly but remains at comfortable levels last released at 1.6% YoY on the headline reading and 1.0% YoY for the core measure. This evidence suggests no change in policy at the Tuesday meeting.

The Swiss National Bank (SNB), whose primary mandate is to ensure price stability which it defines as inflation below 2% is likely to maintain rates at 0.25%. Recent data indicates February CPI at +0.4% and a drop in the unemployment rate from January’s 3.8% to 3.6% in February. SNB President Philipp Hildebrand recently noted that the strong franc lowers inflationary pressures in the near term however the bank noted the need to fight inflation over the medium and longer term as it sees its price stability threshold being breached in 2013.

The Norges Bank has signaled that it will resume tightening by the middle of 2011. The bank last raised rates in May and has provided guidance through the end of 2014 and expects its benchmark rate to average 2.25% this year and 3.25% next year. This indicates an expected 25bps hike each quarter from June 2011 until the end of 2014. Thursday’s release of February CPI showed a slowing to +1.2% from the prior month’s +2.0% which is supportive of no change in policy at the upcoming meeting.

A mixed picture in China, but further tightening is still needed

The past week of data released out of China has confounded many market participants. On one hand the February data showed elevated risks to inflation – Feb. PPI was 7.2% vs. expected 7.0% yoy and Feb. CPI was 4.9% vs. expected 4.8% yoy, however on the other Feb. Retail sales came in much weaker at 15.8% yoy and Feb. Trade balance turned negative for the first time in 11 months coming in at -7.31B vs. expectations of +4.9B. Finally it appears their efforts to slow the rapid rise in real estate is beginning to have knock-on effects, however a considerable amount of this may also be attributed to a robust Chinese new year.

In the end, China still has been unable to control the more pressing issue, inflation. While food prices remain the main driver of CPI (which have somewhat moderated of late), higher energy and commodity prices continue to remain the underlying concerns to PPI. Moreover, we’ve seen that commodity pricing pressures tend to lead Chinese PPI, and with crude oil and industrial metals near their respective highs, rising inflation looks like it’s a problem unlikely to go away anytime soon. Therefore, we believe the PBoC will continue to remain active over the coming weeks/months, with our central case looking for two further interest rate hikes, in sum 50bps, before the end of June. We also envision additional RRR hikes in order to further withdrawal liquidity from their financial system.

As China tightens to manage liquidity and control inflation, we may see periodic setbacks in risk sentiment as well as dips in commodity prices and the prices of commodity linked currencies (AUD, CAD, and ZAR), however we believe such pullbacks are likely to be relatively short lived and should be viewed as potential buying opportunities.

Key data and events to watch next week

United States: Tuesday- March Empire Manufacturing, Feb. Import Price Index, Jan. Total Net Tic Flows, March, NAHB Housing Market Index, FOMC Rate Decision Wednesday- MBA Mortgage Applications, Feb. Housing Permits, Feb. Building Permits, Feb. Producer Price Index, Q4 Current Account Thursday- Consumer Price Index, Weekly Jobless Claims, Feb. Industrial Production, Feb. Capacity Utilization, Feb. Leading Indicators, March Philadelphia Fed

Eurozone: Monday- Jan. EZ Industrial Production Tuesday- EZ Employment 4Q, EZ March ZEW Economic Sentiment, German March ZEW Surveys (Current Situation & Econ. Sentiment), EU Finance Ministers meet in Brussels Wednesday- EZ 4Q Feb CPI Thursday- EZ Jan. Construction Output Friday- EZ Jan. Current Account, Trade Balance, German Feb. PPI

United Kingdom: Tuesday- DCLG Jan. House Prices Wednesday – Feb. Claimant Count Change, Jan. Avg. Weekly Earnings, Jan ILO Unemployment Rate, Thursday – Feb. Nationwide Consumer Confidence

Japan: Monday- Jan. F Industrial Production, Jan. F Capacity Utilization, Feb. Consumer Confidence, Tuesday- BOJ Target Rate, Feb. F Machine Tool Orders, 1Q BSI Large All Industry, 1Q BSI Large Manufacturing, Wednesday- Feb. Tokyo Condominium, Jan. Tertiary Industry Index Thursday- BOJ Feb.16-17 Board Minutes Friday- Jan. F Coincident & Leading Index.

Canada: Monday- 4Q Capacity Utilization Rate Tuesday- 4Q Labor Productivity Rate Wednesday- Jan. Manufacturing Sales Thursday Jan. Int’l Securities Transactions, Jan. Wholesale Sales, Feb. Consumer Price Index, Feb. Bank Canada CPI Core

Australia & New Zealand: Monday- RBA March Minutes, Feb. New Motor Vehicle Sales, NZ REINZ House Sales (3/14-16) Tuesday Jan. Westpac Leading Index, 4Q Dwelling Starts Thursday: RBA Foreign Exchange Transactions, NZ 1Q Westpac Consumer Confidence

China: March 13-18- Feb. Actual FDI, March 13-15 Feb. New Yuan Loans, Feb. Money Supply (M0,M1,M2) Tuesday- Conference Board China January Leading Economic Index

WEEKLY OUTLOOK - Week of March 6th, 2011

noreply@blogger.com (MSII) — Mon, 07 Mar 2011 09:51:00 +0000

Highlights
The Dollar sags as key EU decisions loom
The ECB takes its anti-inflation medicine
Commodities continue to stay aloft amid tensions in MENA
The BOE gets pipped at the post
Kiwi under pressure ahead of RBNZ
The Dollar sags as key EU decisions loom

The greenback slumped further as violence in Libya escalated and fears continue to mount of unrest spreading to other, more economically significant countries in the region. Despite the largest gain in jobs since census-induced hiring in mid-2010, and other signs of improvement in US labor markets e.g. further declines in initial claims, the buck limped out at its lowest level for the year according to the USD Index. But the USD’s performance was mixed against most currencies other than the EUR, which rallied across the board on ECB rate hike expectations (see below). All in all, it could have been much worse for the USD and this suggests a safe-haven bid may be returning to the greenback. US stocks declined and Treasury yields fell on safe-haven buying of US Treasuries in spite of the ostensibly upbeat Feb. jobs report. Precious metals and commodities also continued to gain ground on the Mid-East upheaval. The focus there is firmly on efforts to oust Libyan leader Gaddafi and we would suggest it is a question of when, not if, he disappears into exile, potentially setting up a rapid reversal in safe haven assets. In the meantime, civil conflict in Libya is likely to drag on and the dollar’s descent seems likely to continue, though probably less of a rapid collapse and more of a slow grind.

Over the next several weeks, EU leaders will be meeting to tackle their debt/financial crisis, culminating in the March 25 summit that aims to produce the comprehensive crisis resolution mechanism. The end of next week will see the ‘European Competitiveness Pact’ unveiled, which aims to strengthen economic and fiscal coordination among member states. Indications are that deep divisions remain on many of the key issues, such as establishing concrete debt reduction goals, increasing the size of the bailout fund, and whether to allow it to buy peripheral government debt. The risk to recent EUR gains is that EU leaders fail to produce a credible mechanism and markets conclude sovereign defaults remain a serious threat, which may see EUR come under pressure despite rate hike expectations. Lastly, we would note the relatively minimal gains in EUR/USD since the relatively surprising ECB announcement (only about 120 pips), which we interpret as a sign most of the move was already priced in.

We see immediate upside potential for EUR/USD while the 1.3800/50 area holds. Initial resistance is at 1.4020/50, above which gains to the 1.4180/1.4200 are our expectation. Overall, a Fibonacci wave extension suggests 1.4420/25 as a potential target for the current advance, once above 1.4050.

The ECB takes its anti-inflation medicine

ECB Governor Trichet surprised the markets last week with an explicitness he has saved until the last 6 months of his term in office. He reverted to the verbal code words he used during the Bank’s previous tightening cycle when he said that “strong vigilance” is warranted with a view to continuing upside risks to price stability. In the past this signaled that a rate hike was imminent. Now the market expects Trichet to announce a rate hike at April’s meeting. But it wasn’t this stock phrase that surprised market watchers, it was Trichet’s candidness.

Although he said the ECB never pre-commits to a rate decision he added that he expects rates to rise by 25 basis points and that a rate hike next month would not signal the start of a tightening cycle. This was central bank communication at its most clear.

Immediately investors scrambled to re-adjust interest rates armed with this new information. 3-month euro Eonia swap rates surged 10 basis points to their highest level in 2 years, while Euribor – the inter-bank lending rate – also surged on the news. The extra yield boosted EURUSD, and it is now on the brink of 1.4000.

Up until last week the markets had been expecting the Bank of England to hike first. After the ECB press conference the yield differential between German and UK yields widened considerably which boosted EURGBP to 0.8600.

So why did the ECB bite the bullet? The most likely reason is that rapidly rising oil prices don’t warrant extraordinarily accommodative interest rates. Indeed, Trichet omitted to mention that the interest rate was appropriate; instead he said the current stance of monetary policy was “very accommodative.”

But will one hike be enough? We would say probably not. Inflation in the Eurozone is running at a 2.3 per cent annualized rate. Even with a 25 bp increase real interest rates will still be negative, so the ECB aren’t going to stamp out inflationary pressure with a small, one-off rate hike. So if the Bank is serious about inflation a series of hikes seems more likely. The market has rushed to price in a more than 50 per cent chance that rates will rise to 2 per cent (they are currently 1 per cent) in 12-months’ time.

The ECB and the Federal Reserve are now at either end of the policy spectrum, with the latter seemingly committed to providing the full $600bn allotment of QE2 to the US economy until June. The diverging paths of the two largest global central banks should benefit EURUSD. So far it has failed to break above 1.40, but in the coming weeks, based in its yield advantage, we see EURUSD back at the 1.4250 highs last reached in November 2010.

Commodities continue to stay aloft amid tensions in MENA

This week crude oil prices rose to fresh 29-month highs ($104.30/35) amid the rapid deterioration of stability in Libya and the threat of it spreading to other MENA (Middle East/North African) nations. The persistent violence has caused supply disruptions in Libya of approximately 1 million barrels a day, which is over half of their daily output. While news that Saudi Arabia guaranteed to use spare oil capacity if needed – Saudi’s spare oil capacity is estimated to be 5 million barrels a day, temporarily calmed the markets, it’s not an exact match since Arabian oil is much heavier than Libya’s light sweet crude and is thus problematic since it needs additional refining. With the current geopolitical environment riding high emotionally, fundamentals are likely to remain in the rear-view mirror. Furthermore, even prior to the political unrest in the Middle East we saw signs of demand growth picking up in China and India, and with today’s U.S. unemployment rate falling to 8.9% it signals demand in the west may begin to pick up as well. Lastly, market participants are beginning to envision a weaker USD moving forward, based on diverging interest rate expectations between the Fed and the ECB and BoE, which has caused greater demand for commodities and ultimately adds more “fuel to the fire”.

The “flight-to-safety” trade has not just been all about oil, but was also present in precious metals as well. As noted in this week’s Commodities Corner, “with tensions in the Middle East unlikely to subside anytime soon, this flight-to-safety trade could be stronger and last longer than the market currently anticipates, subsequently traders are beginning to take action.” Over the past week gold broke to new nominal all-time highs near $1440/oz. and silver just made fresh 30-year highs of $35.35/40 at the time of this writing. Going forward, price action should remain volatile, however pullbacks could be shallower than one would anticipate as investors who have missed the current move higher in commodities may look to jump on board in the not too distant future. A resolution to the Libyan turmoil, on the other hand, could see a more serious set-back.

The BOE gets pipped at the post

After the events in the Eurozone, it now seems unlikely that the Bank of England will be the first of the major central banks to hike interest rates. The Bank meets next week to decide on policy, but it is expected to remain on hold. In fact, since the last meeting the market has slightly reduced its bets that rates will rise in the UK over the next few months as economic data has disappointed especiallyQ4 2010 GDP and the PMI services sector survey for last month. Sonia rates – GBP swap rates - have fallen from their peak and 3-month UK Libor (inter-bank lending rates) remains within its near-term range.

This has thwarted the rise in sterling and for now the top in GBPUSD is 1.6300.

EURGBP looks ripe to outperform in the near-term. After 0.8600, the 0.8900 high reached in October comes back on the radar.

Kiwi under pressure ahead of RBNZ

On Thursday March 10, the Reserve Bank of New Zealand meets to decide on interest rates. The outlook for the island nation has been very bleak after the tragic 6.3 magnitude earthquake which struck Christchurch on Feb. 22. This was the second major earthquake in 6 months, the previous quake occurring on Sept. 4. Both quakes are estimated to have cause as much as NZ$20 billion in damage and have delivered a blow to growth prospects with the risk of a relapse into recession as indicated by Q3 GDP which contracted by -0.2%.

The 90-day bank bill rate has plummeted from about 3.20% on Feb. 21 to current levels of around 2.86%. Additionally, Prime Minister John Key said he would “welcome” an interest rate cut. He went on to say “the market has priced in a cut from the Reserve Bank. That would probably be my expectation, that the Reserve Bank would cut, but it’s for them to determine that”. While some market participants are anticipating a rate cut, the distribution of expectations is relatively balanced with about half of analysts forecasting no change in rates. Of those expecting the bank to slash rates, about half are looking for a 50bps cut while the other half is anticipating a 25bps decrease. With recent weakness in the NZD, it appears that a cut may be priced in which indicates that the risk is to the upside.

Technically, NZD/USD is facing a significant pivot around its 200-day sma which currently comes in at about 0.7380 and the Dec. lows which are around the 0.7345/50 area. The pair is trading below the daily ichimoku cloud which suggests a downward bias. A daily close below the 200-day sma and Dec. lows is likely to see further downside. Key levels to the upside include the daily Tenkan line which is around 0.7480 ahead of the daily cloud base and Kijun line which are around 0.7580/90 – just below the 0.7600 area where the 55 and 100-day sma’s converge.

WEEKLY OUTLOOK - Week of FEB 27, 2010

noreply@blogger.com (MSII) — Mon, 28 Feb 2011 12:01:00 +0000

Highlights
Dollar weaker on diverging policy expectations while safe havens surge
Pricing in that the Bank of England won’t bite the bullet
Flip-flopping Trichet may flip back to hawkish camp
Aussie, Aussie, Aussie, Oi! Oi! Oi!
Higher commodity prices here to stay?
Key data and events to watch next week
US Dollar weaker on diverging policy expectations while safe havens surge

The past week saw a decline in the greenback as expectations that the Fed will lag other major central banks in lifting interest rates mounted and as commodities surged amid continued turmoil in the Middle East. Tensions in Libya drove commodities higher led by rising oil prices and saw significant flows into the CHF, JPY, and gold as investors sought safety. CHF reached a record high against the US dollar, USD/JPY approached long term lows, and gold neared record highs against the buck as risk aversion took hold. Higher commodity prices due to supply shocks have fed into higher headline inflation which has prompted central banks to step up the hawkish rhetoric. MPC minutes from the Bank of England showed Spencer Dale joining Andrew Sentance and Martin Weale in voting for a rate hike, while ECB council members Axel Weber and Yves Mersch this week noted the need for the bank to be alert and ready to raise rates as inflationary pressures persist. Keep in mind that these hawks are still in the minority as other policy makers view inflation as temporary, however second round effects are a concern and the ECB and BOE have indicated their alertness. On the other hand, the Fed continues its asset purchase program as planned and the second estimate of 4Q GDP disappointed expectations with lower consumption and government spending than previously thought. The divergence in policy expectations has resulted in a weaker USD.

The elevated oil prices have also benefitted the Canadian dollar. USD/CAD fell to multi-year lows as it traded at levels that have not been seen since early 2008. The Bank of Canada, European Central Bank and Reserve Bank of Australia will meet in the week ahead to announce interest rates although we do not expect any change in policy rates. With several central bank meetings scheduled next week, we will gain valuable insight into policy expectations. Additionally, geopolitical events and developments in the Middle East will remain a focus as this has directly impacted the price of oil and the safe havens.

Key technical levels are coming into focus with a significant pivot in the USD index just below 77.00 where the lows of February can be found. While this may support the pair in the near term, a break below suggests further downside potential for the buck. EUR/USD sees a key level to the topside at the February highs of around 1.3860. A sustained break above this level is needed to see the rally continue. In cable (GBP/USD), the key level is around the 1.63 area which is resistance dating back to November. We would note that the dollar has weakened to multi year lows and record lows against the CAD and CHF respectively and appears vulnerable as it is testing key levels against the other majors.

Pricing in that the Bank of England won’t bite the bullet

Earlier this month the market thought that the UK would be the first major central bank to raise interest rates to stem the economy’s sticky inflation problem. But as we get close to month-end investors are scaling back their expectations of rate hikes. The 3-month sterling swap price, which moves closely with interest rate expectations, fell 5 basis points last week, and the June short sterling futures contract is also higher (yields lower). Interestingly, this has happened even though we found out that another member of the Bank of England Spencer Dale, the Bank’s chief economist, voted for a 25 basis point rate hike at the MPC meeting early in February.

Interest rate expectations have fallen just as investors’ focus has shifted. Earlier this month inflation pressures dominated the headlines, but now the pendulum has swung back to growth. And the news was not good. Q4 2010 GDP was revised lower to -0.6 per cent and a CBI retail trade survey fell to its lowest level for 8-months suggesting that the UK’s economic recovery is extremely fragile and certainly wouldn’t be able to withstand a global oil price shock if the Middle East tensions escalate in the near-future.

This is negative for sterling especially versus the euro. Above 0.8550 we expect the pair to move back towards the 0.8650 highs from January, before embarking on the 0.8900 peak reached back in October 2010.

Flip-flopping Trichet may flip back to hawkish camp

The market gets another briefing from ECB President Trichet on Thursday after the ECB’s monthly rate-setting meeting. We do not expect the Bank to raise interest rates; however, there is growing expectation that Trichet will regain his hawkish tone after sounding more dovish at the February press conference. Inflation pressures have arguably increased in the last few weeks: Germany, the currency bloc’s largest economy, reported that prices were growing at an annualized 2 per cent rate in February – the top of the ECB’s price range. Also, the sharp appreciation in the oil price and the continued risks of a supply shock due to political tension in the Middle East are likely to be cited as factors by Trichet that “warrant much attention, to ensure price expectations remain well anchored.”

Traditionally the ECB has been tough to stamp out price pressures, more so than the Federal Reserve and the Bank of England. Although the economies in Europe’s periphery are weak and heavily indebted, the ECB has to consider the threat of a German economy growing at a 4 per cent quarterly rate causing price pressures to become entrenched. Currently the market is not expecting the ECB to hike rates until the summer, but euro-swap rates are back at their 4-week highs, suggesting that momentum is gathering in financial markets for the ECB to normalize monetary policy.

The risk is, of course, that Trichet is less hawkish than the market expects. This could weigh on EURUSD, which is currently trading at 1.3750-1.3800. If the market perceives that Trichet is trying to tone down market expectations of rate hikes, then we could see back to the 1.3450 level (50-day moving average) extremely quickly. This is because much of the recent strength in the single currency has come from higher Eurozone yields. This also supported the euro during the recent bout of risk aversion caused by the violence in Libya.

But we still continue to believe that the ECB won’t hike rates unless the EU authorities come up with a credible long-term solution to sort out the peripheral nations’ debt woes. A solution should include bond buy-backs to reduce long-term interest rates, less erroneous interest rates for the countries that have already requested bailouts, possible fiscal transfers between the strong and weak nations, structural economic reforms and plan for an orderly mechanism for default. If the authorities can agree on this then it becomes far easier for the ECB to hike rates. We will find out more in mid-March at the next EU Summit, when the currency bloc’s leaders will debate the issue. German voters may be the spanner in the works, however. They remain opposed to any further help to indebted nations and they go to the polls at the end of March. If Germany is not on board with a long-term solution we think the chance of its success and effectiveness are slim.

If no plan is formed, then EURUSD could dip back to the January lows sub of 1.3000. But if a harmonious plan is hatched at the upcoming summit then EURUSD at 1.4000 looks possible in the coming weeks.

Aussie, Aussie, Aussie, Oi! Oi! Oi!

Over the last few months the AUD/USD had every excuse to sell-off and yet it remained firm. Analysts cited everything, flooding and cyclones in Australia, significant overvaluation according to PPP, China raising interest rates, a pullback in commodities, and of late tensions in the Middle East; and while slight pullbacks have occurred along the way, their declines have lessened with each passing week. Even in the face of recent risk aversion, the Aussie has been able to attract foreign inflows due to the higher commodity prices. Furthermore, even if precious metals prices falter in the short-term we still believe iron ore and base metal prices will remain at elevated levels as continuing demand from Asia will sustain the need for Australia’s resources.

Since the turn of the year, AUD/USD has been trading within a triangle pattern. Currently resistance resides just above current levels near 1.0160/70, while support can be found just below parity at 0.9980/90. Technically speaking, since the trend prior to this consolidation pattern was higher and a triangle pattern is considered a continuation pattern, then it is reasonable to expect a breakout to the upside over the coming days. More specifically, it appears we have just completed wave-d within the triangle pattern, consequently the finally pullback towards 1.0050/1.0100(wave-e) should be viewed as a buying opportunity before a breakout higher. Keep in mind a direct move higher is still plausible and would not invalidate the pattern or our view as we still anticipate higher prices in the week(s) ahead. Depending upon the actual point of breakout, the measured move objective on a move higher is approximately 1.05 to 1.06.

Next week sees a plethora of high impact data in the land down under which could potentially spark such a move. On March 1st there is the Feb. PMI-Manufacturing, RBA meeting, Jan. Retails Sales and 4Q Current Account Balance, the 2nd sees 4Q GDP and Jan. New Home Sales and the 3rd sees Feb. PMI-Services, Jan. Building Approvals and Jan. Trade Balance (dates are local to Australia).

Higher commodity prices here to stay?

Risk aversion reared its ugly head this week as jitters of spreading turmoil in the MENA (Middle East and Africa) region jolted market participants. Flows poured towards safe haven assets which saw precious metals and US treasuries surge higher – XAG/USD made record nominal highs around $34.33/oz. this week. Crude oil was the biggest beneficiary of MENA unrest with close to +10% (WTI) weekly gains on heightened fears of supply disruptions out of Libya.

While safe haven flows have been noted as the main source to the recent commodity boom, accommodative monetary policy has played a more significant role in the broader uptrend. Low global policy rates have significantly accelerated commodity price gains in the last decade relative to the slower pace of acceleration witnessed in the decade prior when global policy rates were broadly higher.

Recent developments have seen a number of central banks consider tightening sooner rather than later, mainly the ECB and BOE. However, the efficacy of renewed hiking cycles in controlling global commodity prices is debatable. Global growth outlooks have been improving but remain hampered by rising geopolitical and economic uncertainties. The extent of monetary policy tightening that both the UK and Euro-zone would be able to absorb considering their respective situations – negative GDP prints in the UK and EZ periphery issues – is likely on the lower end of the spectrum. Furthermore, target rates in the U.S. and Japan are likely to remain near zero for the entirety of 2011 and will likely see depressed policy rates for developed economies for the remainder of the year. We think this may continue to support commodities with the pace of price acceleration to depend on external risk events. Judging from what we’ve seen with Egypt and now Libya in just a matter of weeks, the possibility for a continuation in rapid commodity price gains cannot be dismissed.

Key data and events to watch next week

United States: Monday – Jan. personal income & spending, Jan. PCE deflator, Feb. Chicago PMI, Feb, NAPM-Milwaukee, Jan pending home sales, Feb. Dallas Fed manufacturing activity index, Fed’s Dudley to speak Tuesday – Jan. construction spending, Feb. ISM manufacturing and prices paid, Fed Chairman Bernanke to give semiannual testimony at Senate Wednesday – Feb. ADP employment change, Fed’s Beige Book, Fed’s Bernanke to give semiannual testimony at House Thursday – Weekly initial jobless claims and continuing claims, 4Q F nonfarm productivity and unti labor costs, Feb ISM services, Fed’s Bernanke and Kocherlakota speaks Friday – Feb employment report, Jan. factory orders, Fed’s Yellen speaks

Euro-zone: Monday – German Jan. import price index, EZ Jan. CPI Tuesday – German Feb. unemployment change and rate, German Feb. final manufacturing PMI, EZ Jan. unemployment rate Wednesday – EZ Jan PPI Thursday – Feb final German and EC services PMI, 4Q prelim EZ GDP report, EZ Jan. retail sales, ECB announces interest rates & press conference Friday – ECB’s Noyer, Weber, Draghi & Orphanides speak in Paris

United Kingdom: Tuesday – Feb. Nationwide House prices, Feb. manufacturing PMI, Jan. net consumer credit, mortgage approvals Wednesday – Feb. construction PMI Thursday – Feb. hometrack housing survey, services PMI

Japan: Monday – Jan prelim industrial production, retail trade, large retailers’ sales, Feb. small business confidence, Jan. vehicle production, housing starts, construction orders Tuesday – Jan jobless rate, household spending Thursday –4Q capital spending

Canada: Monday – 4Q current account, Dec. and 4Q GDP Tuesday – Bank of Canada rate announcement Wednesday – Jan. industrial product price and raw materials price index Friday – Ivey PMI

Australia & New Zealand: Monday – NZ trade balance data, AU 4Q inventories, AU Jan private sector credit, Feb. NBNZ activity outlook and business confidence Tuesday – NZ 4Q terms of trade, AU Feb. AiG performance of mfg index, AU 4Q current account balance, net exports, AU Jan. retail sales, NZ ANZ commodity price, RBA announces cash target rate, RBA commodity price index Wednesday – AU Jan HIA new home sales, AU 4Q GDP Thursday – AU Jan building approvals, trade balance, AU Feb. AiG performance of service index

China: Tuesday – Feb. manufacturing PMI Thursday – Feb. services PMI

WEEKLY OUTLOOK - Week of Feb 6, 2011

noreply@blogger.com (MSII) — Mon, 07 Feb 2011 17:55:00 +0000

Highlights
Rates, data support USD rebound
Aussie stays strong despite floods and cyclone
The UK economic pendulum swings the other way
Gold and silver may be unable to stay aloft
U.S. growth outpacing Canadian growth
Key data and events to watch next week
Rates, data support USD rebound

US data this past week pointed to a further gain in momentum for the US recovery, with personal spending, Chicago PMI, both ISM surveys, factory orders and chain store sales all rising and beating estimates. Even the heavily distorted January US jobs report held some good news. Buried in the data, and driven by census adjustments, nearly 600K jobs were created in December, papering over the weaker Jan. job gains. US Treasury yields rose on the back of the improving outlook, with 10-year yields breaking higher out of the nearly 2-month consolidation range and reaching levels last seen before last summer’s slowdown. More importantly, US rates reversed recent spread widening against the USD, suggesting an important USD low may have been seen. A week that began with risk being embraced and the USD being shunned saw a sharp reversal for the greenback, though most of the gains were against the EUR. For the week, however, the US dollar index posted a large ‘hammer’ on weekly candlesticks, a bullish reversal pattern after a decline. We look for the USD to gain further ground in the weeks ahead, especially against EUR and JPY. If the dollar recovery proves more substantial, we may see commodities and commodity currencies lose some further ground.

In contrast, the Euro witnessed a sharp reversal after making new highs for the year after ECB Pres. Trichet indicated rates were appropriate and that inflation risks remained balanced. That view effectively quashed market speculation of a near-term ECB rate hike and sent the Euro reeling. Trichet also avoided responding to questions on the timing of the ECB’s exit strategy, suggesting a greater likelihood that unlimited ECB lending to beleaguered Eurozone banks would be extended beyond the previously indicated March expiration. At the end of the week, EU leaders were unable to reach agreement on the so-called “competitiveness package’ put forward by Germany, suggesting that significant divisions remain within the union. Also, earlier in the week, Germany rejected the idea of allowing the EFSF (European Financial Stabilization Facility) to buy peripheral nations’ bonds in secondary markets. Such a move was seen to provide the best hope for high-deficit countries to retain access to capital markets, and without it the risk of those countries needing a bailout is back in the picture. EUR/USD has managed to hold above the break level of 1.3520/40, but has dropped back into the daily Ichimoku cloud (top at 1.3626), suggesting a downside bias now prevails. Once below 1.3520, we would look for additional weakness to the 1.3365 daily Kijun line initially.

Aussie stays strong despite floods and cyclone

Despite being hit with another natural disaster as Cyclone Yasi reached north Queensland, the Australian dollar remained close to its post-float highs as the Aussie was given a boost this past week following the release of the RBA’s Quarterly Monetary Policy Statement. The bank is looking past the short term impact of recent force majeure and noted that the overall level of growth in the Q2 is “likely to be back close to the level it would have been in the absence of the floods”. With the forecasted growth for 2011 raised to 4.25% from the previous prediction of 3.75% the longer term outlook for the economy and currency remains positive; however the Aussie remains vulnerable to risk aversion possible negative surprises in next week’s economic data out of Australia and China.

On Thursday, Australia is set to release employment data which is expected to show 20.0k jobs added in January from 2.3K in December. The RBA report noted, “continued solid employment growth over coming months, though most likely at a slower pace”. The risk is for a weaker than anticipated print as weather disruptions have reduced consumption and have rendered a significant portion of mines inoperable. China trade balance is also due out on Thursday and is expected to show a decline to $10.2B from the prior $13.1B. Additionally, imports are anticipated to slow to 21.9% from 25.6%. This is likely to have an effect on the Australian dollar as China imports a large amount of natural resources from Australia. Indications of a slowing economic activity in China may weigh on the Aussie. Lastly, the sovereign debt problems in Europe and tensions in the Middle East remain a concern to risk sentiment in the near term.

Near term corrections can be viewed as buying opportunities as the longer term outlook remains bullish. Key levels to the downside include the daily Kijun and Tenkan lines currently converge around 1.0030 with the daily ichimoku cloud top and 21-day sma below at about 0.9990. A break below these levels may see towards the 21-week sma and 100-day sma which converge around 0.9875/85. Key levels to the upside are the 1.02 figure and post-float highs of around 1.0260.

The UK economic pendulum swings the other way

Opposing economic signals from the UK are clouding the outlook for growth and becoming a headache for policy makers at the Bank of England. Firstly, GDP for the fourth quarter was negative, shocking the market and causing sterling to tumble. But within a few days manufacturing and services survey data came in at multi-year highs for January, sending GBPUSD back above 1.60.

Making the economic picture even more complex is inflation, which is running well above the Bank’s 2 per cent target at 3.7 per cent on an annualized basis; and then there is the government’s largest fiscal retrenchment in the post-war era. So trying to predict the future trajectory of interest rates has become incredibly difficult.

One way to get a grip on UK growth dynamics is by looking at the facts: manufacturing is strong, although there are signs of improvement in the services and construction sectors this is from a very low base, housing looks weak and the labor market is expected to deteriorate as public sector job cuts take effect.

The voting pattern of the Monetary Policy Committee at the Bank of England reflects the divergence in the economic data. Last month there were two members who voted for a rate hike to stem inflation with one member voting for more quantitative easing. The MPC meet next week and the market expects another month of no change in policy. However rate hikes are looking more and more likely in the absence of sustained weakness in economic data and the market is currently pricing in a hike by the middle of the year. Rising bond yields are lending support to sterling.

Indeed, the National Institute of Economic and Social Research, a think tank, urged the Bank to raise rates to stem inflation and the government to scale back its deficit reduction plans. The Bank and the government have to balance their actions going forward. If rates are rising at the same time as public spending is slashed, this would be disastrous for growth. We will have to wait for the 16 February when Mervyn King presents the latest inflation report to find out if the Bank sees inflation as a big enough threat to price stability to hike rates.

Sterling is still in a technical uptrend above 1.5822 – the top of the Ichimoku cloud. However, investors don’t seem happy to hold sterling longs above 1.6200, which has become the level to beat if we are to see further gains in GBPUSD. Until the Inflation Report is released later this month we believe that sterling will remain range bound.

Gold and silver may be unable to stay aloft

As noted two weeks ago, the FOMC’s Jan. interest rate decision ended up providing the spark needed to see renewed interest in precious metals as the Fed reaffirmed their view to keep interest rates “low for an extended period of time”. What’s more, both gold and silver traded into their highlighted “buy zones” at $1300-25 and $26-27 respectively. While in the end these could prove to be great longer-term holdings, something just doesn’t quite “feel” right since they were unable to rally during the heightened Egyptian riots.

Additionally, after precious metals bottomed towards the end of January their advance has been suspect since they rose and fell in conjunction with the U.S. dollar on an intraday basis. Ultimately, it’s not a matter of if this relationship will end, but rather when. After the release of the U.S. Employment Report earlier today it appears these metals may have made a medium term top. Gold ran into the 38.2% retracement around $1355 – using the December All-time high to January 28th low, fell just shy of the 100-day sma at $1360 and formed an RSI negative divergence on hourly charts. Meanwhile, Silver has retraced a larger part of the Jan. 3rd to 28th decline – nearly reaching the 61.8% retracement at $29.35/40, however it too has seen an hourly negative divergence (but this is with Stochastics). Therefore, it may be in our best interest to take some profit while we still have it, and look to re-establish our bullish bias over the coming weeks at better levels. Be on the lookout for our bi-daily “The Commodities Corner” updates under the latest research tab for more immediate precious metals updates.

U.S. growth outpacing Canadian growth

Following last week’s softer inflation data (BoC Dec. CPI Core printed -0.3% vs. expected -0.1%), USD/CAD rebounded from lows around 0.9900 to test above parity. The buck failed to hang on to gains against the Loonie, however, as Monday’s Nov. GDP release (+0.4% vs. expected +0.3%) suggested a Canadian economy continuing down the path of recovery. USD/CAD fell sharply from above parity but stalled just ahead of the 0.9800 figure (the lower end of our expected 0.9800/1.0800 Q1 2011 range) as the pair found decent demand around 0.9860 but remained range bound prior to Friday morning’s Canadian and U.S. employment data.

The release of Canada’s labor figures were quite confounding as the unemployment rate rose more than expected (+7.8% vs. consensus +7.6%)while the net change in employment for January printed higher (+69.2k vs. expected 15k). The Loonie made immediate strides against the buck which saw USD/CAD test lows around 0.9830. U.S. employment data paralleled Canadian data in terms of complexity but in reverse fashion – US unemployment declined more than expected while payrolls printed much worse. Later, the Ivey PMI for January came in at 41.4, well below forecasts of 53.2 and below the expansion/contraction level of 50. USD/CAD has been well bid since and is currently testing a weekly close back above the 0.9900 figure.

We think the failure to trade below key 0.9800 support may be constructive for USD/CAD for a number of reasons. Recent positive US data surprises suggest the US economic recovery is accelerating more rapidly than most had expected. The Canadian recovery, however, has seemingly stalled despite the slightly better than expected Nov. GDP print as export growth has been dampened by the relatively firm Loonie - ‘the cumulative effects of the persistent strength in the Canadian dollar and Canada’s poor relative productivity performance are restraining this recovery in net exports’ – BoC January Monetary Policy Report. Taking a look at yields, the Canada 2yr overnight curve is only 20 bps steeper than the US compared to spread highs around 100bps in 2010. This reflects the pessimistic outlook for Canada’s growth prospects relative to the U.S. which is also confirmed by the BoC - the Bank projects 2011 Canada GDP growth of +2.4% and U.S. growth around +3.3%. We agree with the central bank’s assessment and think a more rapid pace of U.S. growth relative to Canadian growth to likely lend support to USD/CAD above the 0.9800 figure.

Key data and events to watch next week

United States: Monday – Dec. Consumer Credit Tuesday – Jan. NFIB Small Business Consumer Confidence, Feb. IBD/TIPP Economic Optimism Wednesday – weekly ABC Consumer Confidence – Feb 4 MBA Mortgage Applications, Bernanke testifies at House Budget Committee Thursday – Weekly Jobless Claims, Dec. Wholesale Inventories, Jan. Monthly Budget Statement Friday – Jan. Monthly Budget Statement, Dec. Trade Balance, Feb Prelim. U. of Michigan Confidence

Euro-zone: Monday – Sentix Investor Confidence, ECB’s Weber speaks in Tallinn, ECB’s Mersch speaks at Luxembourg Event, German Dec. Factory Order Tuesday – German Dec. Industrial Production Wednesday – German Dec. Current Account, German Dec. Trade Balance Thursday– ECB Feb. Monthly Report, European Financial Services Conference in Brussels Friday – German Jan. Final CPI

United Kingdom: Monday – Jan. RICS House Price Balance Wednesday – Dec. Total Trade Balance Thursday – BOE Rate Decision, Dec. Industrial Production, Dec. Manufacturing Production, Jan NIESR GDP Estimate Friday – Jan. PPI Input & Output

Japan: Monday – Dec. preliminary coincident and leading index CI Tuesday – Dec. current account total, Dec. trade balance Wednesday – Jan. consumer confidence, Jan preliminary machine tool orders Thursday – Dec. machine orders, Jan. domestic CGPI

Canada: Monday – Dec. building permits Tuesday – Jan. housing starts Thursday – Dec. new housing price index Friday – Dec. international merchandise trade

Australia & New Zealand: Tuesday – Australia AiG performance of construction index for Jan., Jan. ANZ job advertisements, Dec. and 4Q retail sales Wednesday – Jan NZ card spending, Australia’s Westpac Consumer Confidence index Thursday – Jan employment change, unemployment rate Friday – NZ Jan food prices, RBA’s Stevens speaks before Parliament

China: Tuesday – Jan. HSBC Services PMI Wednesday – Jan. Trade Balance

WEEKLY OUTLOOK - Week of JAN 23, 2011

noreply@blogger.com (MSII) — Mon, 24 Jan 2011 03:11:00 +0000

Highlights
EUR rebound is fundamentally suspect
Has Europe’s sovereign crisis turned a corner?
Fears of aggressive China tightening may unwind soon
A chilly fourth quarter for the UK
Precious Metals may enter Q1 2011 predicted “Buy zones” next week
Key data and events to watch next week
EUR rebound is fundamentally suspect

The EUR finished out the past week at two month highs against the USD and posted strong rebounds on the crosses as well. The EUR recovered even after EU finance ministers failed to deliver a concrete long-term debt resolution mechanism (see more below), postponing a likely plan to late March. While there has been some movement on the part of Germany to show greater willingness to provide assistance to the periphery, the German government remains insistent that other EU countries will need to shoulder more of the cost as well. This raises the question of how highly indebted countries like Belgium, Italy and Spain will be able to come up with their shares of any support package, and this is the source of our skepticism on the sustainability of the EUR recovery. German data has continued to surprise to the upside with ZEW and IFO surveys all pointing to further strength in the core, and this has also provided the Euro with support.

But core Eurozone strength was never really the issue, but rather how the periphery will muddle through. On that count we still have serious doubts that major debt restructurings (i.e. defaults) can be avoided in several of the peripheral nations. In that sense, we view the recent unwinding of bearish EU bets (e.g. short EUR, long sovereign CDS, short peripheral bonds) as a temporary position adjustment, rather than the end to the European debt crisis. Similarly, we think the fears of an ECB tightening phase are overblown and that even ueber-hawk and potential next ECB president Axel Weber this week downplayed the risks from inflation and called current policy appropriate. We prefer to use current EUR strength as an opportunity to establish more fundamental short EUR positions for an expected decline in the weeks ahead (see the Weekly Strategy).

Has Europe’s sovereign crisis turned a corner?

This time last week the market was looking forward to Eurozone officials taking decisive steps towards creating a permanent solution to the sovereign debt crisis. However, two meetings of EU officials passed with no resolutions agreed. In fact, the German Finance Minister Wolfgang Schaeuble said that the calm that has descended on the peripheral bond markets in recent weeks meant there was less urgency to make changes to the current European Financial Stability Facility (EFSF).

It seems likely that there will be no progress on a permanent solution until the EU council meeting scheduled for 24-25 March. Then officials may agree to an extension of the EFSF fund, which currently stands at EUR440bn. The timing of this meeting is important since it comes just before a state election in Germany on 27 March. Only after this can the German Parliament debate proposals for a permanent bailout facility.

Even though it may seem like Europe’s debt problems have been pushed down the road, the market has given Europe the benefit of the doubt. The euro has extended its rally this week and looks fairly comfortable above 1.3500. Investment flows into the safety of German bunds has also fallen, which has pushed up bond yields. The spread between German and US 2-year government debt has widened to its highest level since November 2009, which could fuel EURUSD gains back up to 1.4000.

The single currency may have yield on its side, but the path to 1.4000 could be bumpy. There has been a shift in the discussion of Europe’s sovereign debt crisis away from bailouts and towards default in Greece’s case and bank sector nationalization in Spain.

Reports that Germany was working on a plan to provide Greece with a loan to buy back its bonds in a restructuring that could apply haircuts to senior bond holders was swiftly denied. If this is true, it would suggest that the EU is taking the first steps towards fiscal unity, which flaunts the fiscal sovereignty rule in the European constitution. However, officials may not be willing to take such drastic action yet, even if it does sound like a sensible long-term solution to Greece’s problems. The cost to insure Greek debt for five years has fallen this week, suggesting that restructuring could bring some certainty to investors and actually reduce risk for investors holding Greek debt. If you know for certain that you could be subject to a haircut then you can price Greek debt accordingly.

Spain meanwhile is working on recapitalizing its troubled Caja banks. The financial position of the 17 domestic lenders is precarious at best. They are scheduled to report all of their non-performing loans and property holdings by 31 January. This could cause market jitters, especially if their liabilities are larger than the approximately EUR50bn the market is expecting.

Fears of aggressive China tightening may unwind soon

China’s pace of economic growth accelerated above expectations (Q4 Real GDP y/y printed +9.8% vs. expected +9.4% in Dec.) which was also reciprocated in Dec. Industrial Production (+13.5% y/y vs. expected +13.4%) and Dec. Retail Sales (+19.1% vs. expected +18.7%). The markets’ reaction to positive China data surprises, however, was negative. Fears of a potential ramp up in PBOC tightening measures gripped financial markets with the brunt of the impact hitting commodities – gold declined -1.7%, WTI crude oil fell -2%, and silver lost around -4% post data release. Commodity currencies experienced concurrent declines as AUD/USD fell sharply below parity to lows around 0.9835 and USD/CAD soared to highs around 1.0030. However, the commodity market selloff should be taken with a grain of salt as speculation for more aggressive PBOC rate hikes are likely to be just that – speculation. Steadying inflation - December consumer prices y/y declined to 4.6% from a prior 5.1% as did producer prices to 5.9 % from a prior 6.1% - may balance out added tightening pressures from faster than expected growth and is likely to see policy direction stay the path of a moderate tightening cycle.

Accordingly, we think the post data commodity currency selloff may be overextended. AUD/USD fell off a proverbial cliff from highs around 1.0075 but was met by strong demand ahead of the 0.9825 range lows – the pair has been consolidating within a 0.9800/1.0025 range since 1/6/11. Above 0.9825 may provide good value for longs on persistent sideways price action. Aussie crosses have also corrected lower on the back of China tightening speculation. AUD/CHF is currently testing key support into 0.9450 highlighted in the Jan. 4th Weekly Strategy and warrants bringing stops to cost as protection against a sharp upside correction as we believe this to be a possibility when rate realities begin to set in over rate expectations.

A chilly fourth quarter for the UK

The strength of the UK’s economic recovery faces its most severe test on25 January when GDP data is released for the fourth quarter of 2010. Market analysts expect the quarterly growth rate to dip to 0.5 per cent from 0.7 per cent in the third quarter and a whopping 1.2 per cent in the second quarter. But the risks are to the downside.

The trade deficit increased over the quarter, which will hit growth; also economic data released so far has shown a divergence between different sectors of the UK economy. The manufacturing sector has come back with a bang, and the PMI manufacturing index reached a multi-year high of 58.3 in December. In itself, this is good news. However, the manufacturing sector is only a small portion of the UK’s economy, a far more important sector is consumption, and there the figures are looking grim.

Retail sales have been on a downward trajectory since October culminating in a dismal 0.8 per cent monthly decline in sales in December, a record drop. Although part of the decline was due to the coldest weather in a century hitting the UK, the hike in sales tax on January 1 suggests that retail sales will not pick up anytime soon. On another note, rising fuel and food costs also depressed retail sales at the end of 2010, which puts more pressure on the Bank of England. The minutes of the latest Bank of England meeting will be released on 26 January, which should give us some idea of where the debate is heading within the Monetary Policy Committee: to hike or not to hike?

As mentioned, there is a chance that expectations for the UK’s economic growth are overdone. If we get a weak GDP reading next week then we could see a sharp reversal in long sterling positions. We were wary about the sustainability of growth in the UK, and wrote in our Q1 2011 outlook that we thought 1.6000 would be a tough resistance level for GBPUSD to break through; so far it looks that way.

Precious Metals may enter Q1 2011 predicted “Buy zones” next week

While the correction in gold and silver has taken a few weeks longer than predicated in our 1Q 2011 Precious Metals Outlook, it has still come nonetheless. The unwind since the turn of the year has been treacherous, especially for the “poor man’s gold”, but ultimately little has changed fundamentally. Much of this price action can be attributed to a reduction of long positioning since the “doomsday” scenario appears to be off the table. In the short-term, the market believes troubles in both the U.S. and E.U. have abated, primarily due to rising U.S. 2011 GDP estimates – based on the 2% reduction of the Social Security tax and EU official’s willingness to discuss a permanent solution and/or changes to the European Financial Stability Facility (EFSF). However, this euphoria is unlikely to last forever and Wednesday’s FOMC interest rate decision may provide a spark in renewed interest for precious metals – Fed is likely to reaffirm their view to keep interest rates “low for an extended period of time”. We believe gold and silver may trade down into the $1300-25 and $26-27 regions next week and could be an attractive area to establish a bullish bias over the coming weeks and months. Alternatively, buying a dip in XAU/EUR between €970-80, for those who prefer to remove the USD variable, could also be an idea.

Key data and events to watch next week

Unites States:

Tuesday – Nov. S&P/CaseShiller Home Price Index, Jan. Consumer Confidence, Nov. House Price Index, Jan. Richmond Fed Manufacturing Index, Weekly ABC Consumer Confidence

Wednesday – Weekly MBA Mortgage Applications, Dec. New Home Sales, FOMC Interest Rate Decision

Thursday – Dec. Chicago Fed Nat Activity Index, Dec. Durable Goods Orders, Weekly Initial Jobless & Continuing Claims, Dec. Pending Home Sales

Friday – 4Q Employment Cost Index, 4Q advance GDP, Jan. Univ. of Mich. Confidence

Euro-zone:

Monday – EZ, French and German Jan. Advance PMI, EZ Nov. Industrial New Orders

Tuesday – French Dec. Consumer Spending, French Jan. Business Survey Overall Demand, German Feb. GfK Consumer Confidence Survey, EU's Barroso and Van Rompuy Speak

Wednesday – French Dec. Jobseekers, ECB's Stark Speaks

Thursday – EZ Jan. Business Climate Indicator, EZ Jan. Confidence Readings, German Jan. preliminary CPI, ECB's Bini Smaghi and Tumpel Gugerell Speak, EU's Van Rompuy Speaks

Friday – EZ Dec. M3, German Chancellor Angela Merkel Speaks

United Kingdom:

Tuesday – 4Q advance GDP, Nov. Index of Services, Dec. Public Finances

Wednesday – BOE Minutes, Dec. BBA Loans for House Purchase, Jan. Hometrack Housing Survey

Thursday – Jan. CBI Reported Sales

Japan:

Monday – Dec. Supermarket Sales

Tuesday – Jan. BOJ Interest Rate Announcement

Wednesday – Dec. Corp Service Price Index, Jan. Small Business Confidence, BOJ Monthly Economic Report

Thursday – Dec. Merchandise Trade Balance

Friday – Dec. Jobless Rate, Jan. Tokyo CPI, Dec. National CPI, Dec. Retail Trade

Canada:

Tuesday – Dec. Consumer Price Index

Wednesday – Nov. Teranet/National Bank HPI

Australia & New Zealand:

Monday – AU 4Q Producer Price Index

Tuesday – AU Nov. Conference Board Leading Index, AU 4Q Consumer Prices, NZ Dec. Performance Services Index

Wednesday – NZ Dec. Credit Card Spending

Thursday – AU Nov. Westpac Leading Index, RBNZ Interest Rate Announcement, RBNZ’s Governor Bollard Speaks

China:

Friday – Jan. MNI Business Condition Survey

WEEKLY OUTLOOK - Week of JAN 16, 2011

noreply@blogger.com (MSII) — Sun, 16 Jan 2011 10:02:00 +0000

Highlights
Range conditions persist, but a break may be building
Has Europe turned a corner?
China’s continued tightening is a temporary setback in risk
A long and winding road to BoC tightening
Key data and events to watch next week
Range conditions persist, but a break may be building

Another week sees another round trip between recent range highs and lows for the USD against many other major currencies. Since the beginning of December, EUR/USD has been effectively contained in a 1.30-1.35 range, with this week’s test below the range bottom having proved unsustainable. The Euro’s subsequent rebound to above 1.3400 looks similarly unsustainable in the short-term, but a further upside test of recent range highs and above 1.3500 seems likely as long as European credit markets continue to mend. We would note the regular monthly meeting of EU finance ministers next week has the potential to generate more positive news flow over the prospects for a permanent debt crisis resolution mechanism, potentially offering a fundamental catalyst to send the EUR higher (see more below). However, there is also potential for disappointment on this front and we would note comments from German Fin. Min. Schaeuble on Friday where he repeated Germany’s opposition to so-called Euro-bonds, the most viable long-term resolution to the debt crisis. For this reason, we would prefer to use EUR strength on a test and potential break of recent range highs as an opportunity to establish short EUR/USD positions in the 1.3450-1.3650 area for an expected medium-term decline. We still think additional bailouts will be required down the road and that sovereign debt restructuring (i.e. defaults) will ultimately come to pass for several of the peripheral countries.

Has Europe turned a corner?

The euro dominated action in the forex markets this week. But it was a week of two halves for the single currency: it started the week in sub-1.3000 region vs. the dollar and ended up heading toward 1.3400, now the single currency is on course to have its best weekly performance in 2 years. The turning point was the success of Portugal’s long-term debt auction. The auction was oversubscribed and the Iberian nation paid yield of 6.7 per cent, crucially this was below the 7 per cent threshold that is considered the rate at which Portugal would need to apply for funds from the EU/ECB/IMF rescue fund.

Even though Portugal could borrow at a cheaper rate from the lending facility, for now it can still borrow in the market, which is helping to restore reputational risk. Indeed, 10-year yields on Portuguese government debt has fallen 35 basis points since reaching a peak last week, and for now a bailout is off the table.

While this softened investors’ attitudes in the credit market, the rally in the euro was sparked by two factors: firstly, news that the EU authorities are discussing credible long-term solutions to the sovereign debt crisis, and secondly the perceived hawkish tone to ECB President Trichet’s press conference on Thursday.

After failing to agree on a long-term resolution to the debt crisis that has gripped peripheral Europe since the end of 2009, reports that the EU would look at possibly extending the size of the European Financial Stability Fund (EFSF) and extend its scope so that it could directly buy foreign bonds along with reducing the interest rate for rescue funds cheered the market. This fuelled the rally in the euro. It was given more gusto after ECB President Trichet was perceived as being hawkish during his monthly press conference. He noted that inflation had risen on the back of higher commodity prices and hinted that if it persisted it may warrant a rate rise. The market has rushed to re-evaluate its interest rate expectations for the ECB, and although a rate rise may not be imminent, it is too early to rule one out for the second half of 2011.

The widening differential in interest rate expectations between Europe and the US has fuelled EURUSD gains. As long as sovereign risk fears remain on the backburner and the ECB remains more likely to raise rates before the US, then EURUSD should be supported. If it can break above 1.3410, then we could see 1.3500, before the 1.42 November 2010 high comes back into view.

But there are some serious hurdles the market would have to clear first before we would be comfortable with EURUSD breaking back in the 1.40 territory. Firstly, EU officials need to come up with the goods and find a credible solution to the sovereign debt crisis. This will most likely require greater fiscal union between euro-area members, with a larger transfer of funds from the rich countries to the peripheral ones. This would hurt Germany as it is the largest economy in the Eurozone. Credit-default swaps on German bunds have been rising steadily higher in recent weeks as investors worry that Germany could get the rough end of the stick in any permanent resolution mechanism. This may make German officials reluctant to agree to expand the EFSF rescue fund, which would dent investor sentiment toward European assets in our view, as it would make a bailout of Portugal and Spain more likely.

Added to this, some large bond funds are still staying away from peripheral debt, and the ECB remains a large purchaser of this asset class. The markets are by no means robust, and a cocktail of German reluctance to extend funds for a rescue mechanism, weak economic data in the currency bloc and a less hawkish ECB/ less dovish Fed could spark a reversal in the single currency’s rally. So we are keeping in mind significant support levels for EURUSD including 1.2910 – recent lows, then 1.2650 – the low reached in August.

China’s continued tightening is a temporary setback in risk

The PBoC announced another hike to the reserve requirement ratio (RRR) today with the intent of managing liquidity and controlling the pace of bank lending. This is the fourth 50bps hike to the RRR in just over two months and will bring the rate for major banks to a record high of 19% when it takes effect next week on Jan. 20. Monthly new yuan loans data released on Tuesday came in at 480.7 billion yuan for December compared to expectations of 360 billion yuan which shows that lending remains at elevated levels. With inflation above 5% and rising from the prior reading, the central bank is also faced with the task of cooling upwards price pressures. The PBoC last raised benchmark rates by 25bps in late December and is now likely to shift towards using reserve requirements as a primary tool to rein in liquidity with several more RRR hikes expected throughout 2011.

The continued tightening in China – the world’s second largest economy – has added to the “risk off” sentiment and resulted in a knee-jerk reaction of firmer greenback and softer AUD and NZD. Commodities were also hit following the announcement of further tightening measures. China has allowed its currency to strengthen slightly as President Hu Jintao prepares to meet with President Barack Obama in Washington next week. Treasury Secretary Timothy Geithner was on the wires on Wednesday with his usual stance that China needs to strengthen the “substantially undervalued” yuan. We would expect the current decline in risk appetite to be a periodic setback and not to have a substantial impact on Chinese growth which was last reported at 9.6%. We would anticipate a rebound in sentiment coming from the tightening by the PBoC, although external factors (i.e. Europe) will remain a key driver of risk sentiment.

A long and winding road to BoC tightening

The Bank of Canada is set to release its interest rate decision on Tuesday, Jan. 18. With the target rate likely to remain unchanged at 1%, the market will home in on Wednesday’s release of the January Monetary Policy Report. In the October report, the BoC revised its 2012 year-end inflation outlook lower to 2% but highlighted upside risks from three principal factors: higher commodity prices, ‘a stronger-than-anticipated US recovery’, and the potential for ‘greater-than-expected momentum in the Canadian household sector’.

The first upside risk to the BoC’s revised inflation outlook has been fully realized as commodity prices have moved broadly higher since November (CRB Index is up about +10% since 11/1/10). The second risk, a ‘stronger-than-anticipated US recovery’, has also been set in motion and the BoC will likely note positive Canadian export growth on the back of improving US economic conditions.

However, the third upside inflation risk (‘greater-than-expected momentum in the Canadian household sector’) has not yet developed and will likely keep the BoC’s upcoming inflation outlook balanced. Household spending growth has been decelerating and signs of a rebound may be fleeting as household debt has been on the rise - household debt to disposable income was a record 148% in Q3 2010. The discouraging uptrend in households’ debt to income ratios dampens upside inflation risks as well as the possibility for a rate hike any time soon. A premature hike would weigh especially heavy on debt saddled households and subsequently Canada’s growth prospects - household spending accounts for about 60% of aggregate demand.

We believe that price gains in commodities alongside a quickening pace of recovery in the US may see the BoC acknowledge upside inflation pressures in the upcoming January Monetary Policy Report. However, we think that BoC tightening is still much further down the road. Although domestic conditions are showing signs of improvement, worse than expected housing data (Dec. Housing Starts 171.5k vs. expected 180k, Nov. Building Permits -11.2% vs. expected +1.5%) and high debt to income ratios suggest a Canadian economy unable to absorb rate hikes in the near future, not to mention the risk for the US recovery to stall. BoC policy direction, however, is moving down the road to tightening - albeit a long and winding one.

Key data and events to watch next week

Unites States:

Monday – Fed's Plosser Speaks

Tuesday – Jan. Empire Manufacturing, Nov. Total Net TIC Flows, Jan. NAHB Housing Market Index, Weekly ABC Consumer Confidence

Wednesday – Dec. Housing Starts & Building Permits

Thursday – Weekly Initial Jobless & Continuing Claims, Dec. Existing Home Sales, Dec. Leading Indicators, Jan. Philadelphia Fed, Weekly DOE U.S. Crude Oil Inventories

Euro-zone:

Monday – EU Finance Ministers Meet in Brussels

Tuesday – EU-27 Finance Ministers Meet in Brussels, German Jan. ZEW Survey, EU Jan. ZEW Survey

Wednesday – Nov. Euro-Zone Current Account, EU Nov. Construction Output, ECB's Stark Speaks

Thursday – German Producer Prices, Jan. Euro-Zone Consumer Confidence

Friday – French Jan. Own-Company Production Outlook, French Jan. Business Confidence Indicator, German Jan. IFO

United Kingdom:

Monday – Jan. Rightmove House Prices

Tuesday – Dec. Nationwide Consumer Confidence, Dec. RICS House Price Balance, Nov. DCLG UK House Prices, Dec. CPI, Dec. Retail Price Index

Wednesday – Dec. Claimant Count Rate & Jobless Claims Change

Thursday – Jan. CBI Business Optimism, Jan. CBI Trends Total Orders

Friday – Dec. Retail Sales

Japan:

Monday – Dec. Consumer Confidence

Tuesday – Nov. Industrial Production, Nov. Capacity Utilization, Dec. Nationwide Dept. Sales, Dec. Tokyo Dept. Store Sales, Dec. Machine Tool Orders

Wednesday – Nov. Tertiary Industry Index

Thursday – Nov. Coincident & Leading Index

Friday – Nov. All Industry Activity Index, Cabinet Office Monthly Economic Report

Canada:

Monday – Nov. Int'l Securities Transactions

Tuesday – BoC Interest Rate Announcement

Wednesday – Nov. Manufacturing Sales, BoC Publishes Monetary Policy Report

Thursday – Dec. Leading Indicators, Nov. Wholesale Sales

Friday – Nov. Retail Sales

Australia & New Zealand:

Monday – NZ Dec. REINZ Housing Price Index & Sales, NZ Dec. Food Prices, AU Dec. TD Securities Inflation

Wednesday – AU Jan. Westpac Consumer Confidence, AU Jan. DEWR Skilled Vacancies

Thursday – NZ Dec. Business PMI, NZ 4Q Consumer Prices, AU Jan. Consumer Inflation Expectation, NZ Jan. ANZ Consumer Confidence Index

Friday – NZ Nov. Retail Sales, AU 4Q Import/Export price index

China:

Tuesday – Dec. Actual FDI

Thursday – 4Q Real GDP, Dec. CPI, PPI, Industrial Production & Retail Sales, Dec. Fixed Assets Inv. Urban

Friday – President Hu Jintao's State Visit to United States

WEEKLY OUTLOOK - Week of JAN 9, 2011

noreply@blogger.com (MSII) — Mon, 10 Jan 2011 00:52:00 +0000

Highlights
US jobs disappoint, but still in the right direction
Is Europe about to implode?
Queensland flooding slows down the Aussie
Encouraging jobs data and accelerating price gains supporting the Loonie
Key data and events to watch next week
US jobs disappoint, but still in the right direction

Dec. US job gains disappointed most observers, but that was mostly the result of heightened expectations following Wednesday's surge in the ADP report, a notoriously poor indicator of concurrent NFP changes. Still, that more jobs were created in Dec. represents another step forward for the US recovery, reinforcing the recent stream of better than expected US data. The decline in the US unemployment rate from 9.8% to 9.4% (exp. 9.7%) was also a step in right direction, but probably was overstated due to a 297K gain in the household survey coupled with a -260K decline in the labor force. Again, though, the trend is clearly pointing toward growing momentum for the US recovery, which we expect will continue for the next few months at least.

Following the labor report, the USD suffered set-backs against other major currencies, with the obvious exception being the Euro, which was the biggest loser for the week. Overall, though, the greenback managed to gain against 13 of the 16 major currencies to start the year (MXN, CAD, and KRW gained vs. USD), with the USD index finishing at its highest levels since late November. US Treasury yields fell somewhat following relatively somber and dovish testimony from Fed Chair Bernanke, with 10 year yields down about 7 bps to 3.32% late Friday, still above recent range lows at about 3.25%. While we expect the EUR to see lower against other currencies in the weeks ahead (see below), the USD may have more trouble extending gains against other major currencies, especially if bonds pop and yields drop below the recent lows cited above. We would also note that the US dollar index is facing stiff resistance at the 81.43/45 level, which is the Nov. high and the bottom of the weekly Ichimoku cloud. As such, we prefer to remain sellers of EUR on the crosses (e.g. EUR/CAD, EUR/GBP, or EUR/AUD), preferably on some kind of a bounce, rather than a buyer of USD, unless on a significant pullback toward recent lows. Consistent with broader USD strength, gold and silver prices look to have posted key reversal weeks, and we would now prefer to be sellers on remaining strength.

Is Europe about to implode?

After dodging a bullet before the holidays, Europe’s peripheral nations are once again getting punished in the bond markets. The spreads between German government bonds and the peripheral nations are close to record highs. Portuguese 10-year government bond yields (up 70 basis points this week) are now at critical levels. The government in Lisbon has said that 7 per cent is the threshold at which it would need to consider taking a bailout. Currently yields are 7.11 per cent, so it seems only a matter of time before Portugal is negotiating with the ECB, EU and the IMF and receiving funds.

Another worrying development is Belgium. Although it isn’t a core economy, it wasn’t considered a basket case either. Back in August its 10-year bond yield fell to 2.8 per cent, yet it is now above 4 per cent and has risen in line with other peripheral nations. So will the home of the European Union be forced to negotiate a bailout for itself in the coming months?

There are three main reasons that investors have targeted the peripheral nations bonds with such gusto since the start of this year. The first is a wave of supply that is about to come onto the market. On 12 January Portugal will offer 2014 and 2020 bonds for auction, Italy and Spain are also holding auctions at the latter part of next week. Investors charged a hefty premium to hold short-term Portuguese bonds in an auction last week, which doesn’t bode well for the upcoming debt sales. The news that the world’s largest bond fund will not be participating in the upcoming bond auctions is another red flag in our opinion as it points towards a buyers strike. If Portugal and Europe’s other weak nations have to pay a higher yield to attract investors to purchase their debt, soon people will worry about the impact higher debt payments will have on growth, causing more investors to ditch their debt and yields to rise and so on. This seems like the start of a debt spiral to us. Next week could see some real fireworks, and as you can see in the chart below, bond spreads are close to breaking fresh Euro-era highs.

EU peripheral bond spreads vs. Germany
Belgium’s problems are actually more political. It is currently without a full-time government and seven political parties are locked in discussions trying to form a government and overcome the political impasse. This is bad timing to have political meltdown as Belgium is finding out. Investors aren’t in the mood to suffer risks within the Eurozone easily and until a fulltime government is found it is unlikely there will be a let-up in the pressure on Belgium’s bonds.

Another factor weighing on sentiment toward the periphery is the European Commission’s plans to overhaul the governance of Europe’s banking sector. One of the proposals is to give regulators the power to write down senior bank debt by any amount necessary, or to convert bank debt into equity if a bank were to get into trouble. Until the risks to the investor are set in stone, European debt is an unattractive asset to hold.The sovereign debt crisis in Europe appears to be spilling over to the euro. EURUSD is currently below 1.3000, and if the sovereign debt crisis is poised to get worse then it will be hard to muster up much enthusiasm for a stronger euro and we could see a continuing grind lower in the single currency. A convincing break below 1.2960/65 could herald losses toward 1.2900 then 1.2650 – the lows reached back in October. But the decline may not be in a straight line due to continuing demand for the single currency from Asian central banks that want to diversify away from the dollar.

Queensland flooding slows down the Aussie

The Australian dollar has fallen over 3% against the U.S. dollar since reaching record free-floating highs on the last day of 2010. This past week, massive flooding in the state of Queensland has disrupted the economy by negatively impacting resource production and allocation. Mines, roads, and railways have been incapacitated by the rising waters. As an economy that is reliant on its natural resource exports as a key driver of growth, the floods have been significantly negative for GDP growth in Q1 (Queensland accounts for roughly 80% of Australia’s coking coal exports). This downbeat outlook has reduced the RBA’s near term tightening bias and has put pressure on the AUD.

While the Queensland state government estimates that so far the floods have generated a loss of up to 5 billion AUD or about 0.4% of annual GDP, it will be some time before the damage can be fully assessed. Additionally, the Australian Bureau of Meteorology forecasts heavy rains will continue into next week. We view this as a temporary supply-side shock and note that reconstruction will generate growth in the future.

Technically, AUD/USD sees a long-term rising trend line support come in around 0.9850 and the top of its daily ichimoku cloud to lend additional support around 0.9820. This support line begins at the June lows of around 0.8080 and was most recently tested on Dec. 1. The 55-day sma is currently above that at about 0.9920 to provide initial support. The current pullback in AUD/USD may present a buying opportunity at these support levels however a break below the trendline may see towards the 100-day and 21-week sma which currently converge around 0.9710 and then towards the Dec. lows around 0.9540. A sustained move back above parity may see towards 1.0100 ahead of 1.0200 and prior highs.

Encouraging jobs data and accelerating price gains supporting the Loonie

Much has been made of greenback strength with the USD Index surging close to +2.5% for the past month to current levels near 81.00. One major exception, however, has been against the Loonie – the greenback is down -1.84% against the Loonie month to date. The fundamental backdrop behind divergent CAD strength relative to most other majors can be attributed to a dichotomy of factors.

The first is the improving economic outlook in Canada and its likely impact on policy direction. Of significant influence to this has been the spate of positive data surprises in the US – Canada’s largest trading partner. Even more influential, however, have been implications of recent domestic data releases. Starting with the labor market, Net Change in Employment for December rose to +22k from +15.2k in November. Even more encouraging were the components of the report, full-time employment rose +38k while part-time employment declined -16k, a good sign for consumer confidence and spending which is likely to have a positive spill-over effect for 4Q 2010 GDP. Additional support to Loonie strength emanates from inflation related data. Wednesday’s higher than expected rise in November industrial product prices of +0.5% in conjunction with the +3.5% rise in November raw materials prices sent USD/CAD sharply lower from above parity to lows around 0.9930.

A second significant factor supporting the Loonie is the bullish outlook for oil prices. Improving growth outlooks and tightening supply (DOE weekly crude oil inventories have dropped for the past 5 consecutive weeks) suggest higher crude oil prices in 2011. Considering 2010’s inverse correlation of -.64 between USD/CAD and WTI oil – the outlook for higher oil translates to a corresponding strengthening in the Loonie.

Further progression in price gains, a likely possibility if Canada and US data continue down the path of positive surprises, may see the BoC consider resuming monetary policy tightening sooner relative to central banks of most other developed nations. The result is likely to see a continuation of CAD strength from a divergence in future interest rate expectations and widening differentials.

Key data and events to watch next week

Unites States:

Monday – Fed's Lockhart speaks

Tuesday – Dec. NFIB Small Business Optimism, Fed's Plosser speaks, Jan. IBD/TIPP Economic Optimism, Nov. Wholesale Inventories, weekly ABC Consumer Confidence

Wednesday – Dec. Import Price Index, weekly DOE U.S. Crude Oil Inventories, Fed's Beige Book,

Thursday – Weekly Jobless Claims, Dec. PPI, Nov. Trade Balance, Bernanke Speaks

Friday – Dec. CPI, Dec. Advance Retail Sales, Dec. Industrial Production & Capacity Utilization, Jan. preliminary U. of Michigan Confidence, Nov. Business Inventories, Fed’s Lacker & Rosengren speak

Euro-zone:

Monday – French Nov. Industrial & Manufacturing Production, EZ Jan. Sentix Investor Confidence,

Tuesday – French Dec. Business Sentiment

Wednesday – German 2010 GDP, EZ Nov. Industrial Production

Thursday – EU's Van Rompuy speaks, Jan. ECB Interest Rate Announcement

Friday – German Dec. final CPI, Dec. EZ CPI, Nov. EZ Trade Balance

United Kingdom:

Tuesday – BRC December Retail Sales Monitor

Wednesday – BRC Shop Price Index, Nov. Trade Balance

Thursday – Nov. Industrial & Manufacturing Production, Jan. BOE Interest Rate Announcement, Dec. NIESR GDP Estimate

Friday – Dec. PPI

Japan:

Tuesday – Dec. Official Reserve Assets, Nov. preliminary Leading & Coincident Index CI

Wednesday – Dec. Bank Lending, Nov. Current Account, Dec. Eco Watchers Survey

Thursday – Nov. Machine Orders, Dec. preliminary Machine Tool Orders

Friday – Dec. Domestic CGPI

Canada:

Monday – Nov. Building Permits, 4Q Business Outlook Future Sales, 4Q BoC Senior Loan Officer Survey, BoC Cote speaks

Tuesday – Dec. Housing Starts

Wednesday – Nov. New Housing Price Index

Thursday – Nov. International Merchandise Trade

Australia & New Zealand:

Monday – Nov. NZ Trade Balance, Imports & Exports, AU Dec. AiG Perf. of Construction Index, AU Dec. Retail Sales

Tuesday – 4Q NZ NZIER Business Opinion Survey, Nov. NZ Building Permits, Nov. AU Trade Balance,

Wednesday – Nov. AU Home Loans and Investment lending

Thursday – Dec. NZ Business PMI, Dec. NZ Card Spending, Dec. NZ House Prices, Dec, AU Employment Report, Dec. NZ ANZ Commodity Price

China:

Monday – Trade Balance (USD)

Thursday – Conference Board China November Leading Economic Index

WEEKLY OUTLOOK - Week of December 26, 2010

noreply@blogger.com (MSII) — Mon, 27 Dec 2010 15:30:00 +0000

Highlights
European debt woes continue to weigh on EUR into 2011
Metals poised to perform well in the year ahead
Asia growth to power regional FX, except Kiwi
Oil prices supported by growth outlooks and tightening supply
Key data and events to watch next week
European debt woes continue to weigh on EUR into 2011

The Euro looks set to finish out the year towards its recent lows. Looking ahead into the New Year, we expect further Euro weakness to develop as European leaders appear unable to develop a comprehensive solution to the regions debt crisis. The debate is between certain national governments, with Germany at the fore, rejecting the need for closer fiscal integration (i.e. Eurobonds) and the ECB, which is left holding the bag, compelled to buy unwanted peripheral government bonds. This puts the ECB in the awkward position of propping up potentially insolvent sovereigns, threatening its own balance sheet and credibility, suggesting the ECB may soon step back from bond purchases and let markets do what they will, which would not be pretty for the Euro. Should the ECB bite the bullet and continue asset purchases, markets will cry 'quantitative easing' and also punish the Euro. Absent a comprehensive solution, the debt crisis appears set to see further Euro weakness in the months ahead. We think a move below the 1.2950/1.3000 area will see a slide toward 1.25/26 in relatively short order.

In contrast to Europe's travails, the US outlook is continuing to improve, aided in no small part by recently approved tax cut extensions and additional stimulus measures. But the USD will likely be restrained by concerns over rising deficits, suggesting the greenback will not see a straight line higher. Instead, we think much of 2011 will continue to see major developed currency (EUR, USD, GBP, and JPY) weakness relative to outperforming minor currencies (AUD, CHF, NOK, SEK, ZAR and MXN). Given that positioning on such trades is somewhat elevated, we will look for opportunities to re-enter on corrections.

Metals poised to perform well in the year ahead

Our fundamental view for higher precious metal prices is driven by the continued low interest rate environment, renewed quantitative easing measures in the United States and further economic bailouts in the European Union. We envision a potential correction into the holidays, however we view this as a buying opportunity as we head into 2011. More specifically, 20 years worth of seasonal patterns suggest prices tend to bottom around the holidays and rally into the end of February before topping out and correcting lower throughout the month of March. We look for the gold-to-silver ratio to stabilize near current levels, thus we anticipate greater synchronization between the two precious metals going forward. Ultimately, we view the $1300-25 and $27-28 regions in gold and silver respectively to be an attractive area to establish a bullish bias whereby gold could rally towards $1,475 and silver could see $32-34 over the coming weeks and months.

Asia growth to power regional FX, except Kiwi

Inflationary pressures are likely to require policy action by the Peoples Bank of China in the New Year. We expect a gradual tightening by increases to the reserve requirement ratio and benchmark rates however this is not likely to significantly impact the Q1 growth outlook for the world’s second largest economy. While tightening is likely to see periodic setbacks in risk sentiment, we believe these setbacks will be short-lived and can be viewed as buying opportunities. The Australian economy, which is strongly tied to the Chinese economy, continues to show strong employment growth however below trend GDP and above average lending rates suggest no change in the policy rate into Q1. The AUD is likely to remain firm though it is vulnerable to economic shifts in China’s economy.

We expect the New Zealand dollar to underperform as the RBNZ takes a more dovish stance. With rates expected to remain low amid weaker consumption and investment as well as elevated exchange rates weighing on exports, the NZD is likely to come under pressure. QoQ GDP for the third quarter released on Thursday showed a contraction of -0.2% and the prior quarter’s growth of +0.1% was revised lower from +0.2%. This indicates a softer economy which is likely to weigh on NZD should the weakness persist.

Oil prices supported by growth outlooks and tightening supply

The front month WTI crude oil contract ascended to fresh 2 year highs, a phenomenon that has occurred on multiple occasions in Q4, to $91.63/bbl on the eve of Christmas Eve. Marked demand growth alongside tightening supply have been the main drivers behind oil’s recent ascent. The December IEA Oil Market Report revised global oil demand forecasts higher by +260,000 bbl/d, an expected annual increase of +1.6%. On the supply side, weekly DOE US stockpiles have repeatedly surprised to the downside – the most recent December 23rd release saw inventories decline -5.3M/bbl versus expectations of -3.4 M/bbl.

Improving global growth outlooks have also added to upside oil price potential. US growth prospects have made lengthy strides on the back of positive data surprises alongside accommodative policy implementations. ISM manufacturing figures have trended higher in Q4 as has ISM non-manufacturing. Labor conditions, however, have shown signs of weakening as evidenced by the uptick in the November unemployment rate and negative data surprises from both components of the November Payrolls report. This is partially offset by the growth in the employment component of non-manufacturing ISM which has shown tightening correlations to non-farm payrolls in recent years. On the policy front, the recent tax cut extensions alongside growth-accommodative Fed policy has resulted in per annum estimated revisions to US GDP of about +1%.

Current market developments indicate considerable oil market tightening has been set in motion. Accordingly, we have revised our oil outlook for Q1 2011 higher to an average of $88/bbl and expect prices to trade within an $80-100/bbl range. However, we acknowledge potential risks to our expected range emanating from geopolitical tensions from the Korean peninsula, possible euro-zone periphery implosion or contagion, shifts in China policy direction, and supply/demand surprises. Nevertheless, we maintain the view that a firming demand landscape will likely be the principal determinant supporting higher oil in Q1 2011.

Key data and events to watch next week

United States: Monday – Dec. Dallas Fed Manufacturing Index Tuesday – Oct. S&P/Case Shiller Home Price Index, Dec. Consumer Confidence, Dec. Richmond Fed Manufacturing Index, Thursday – Weekly Jobless Claims, Dec. Chicago PMI, Nov. Pending Home Sales

Euro-zone: Wednesday – EZ Nov. M3 Annual Growth Rate, German Dec Preliminary CPI

United Kingdom: Wednesday to Friday – Dec. Nationwide House Prices

Japan: Monday – Nov. Corporate service price index, Nov. vehicle production, Nov. housing starts, Nov. construction orders Tuesday – Dec. small business confidence, Nov. jobless rate, Nov. overall household spending, Dec. Tokyo CPI, Nov. National CPI, Nov. industrial production, Nov. retail trade, Nov. labor cash earnings Thursday – Dec. Nomura manufacturing PMI

Canada: Wednesday – Oct. Teranet/National bank HPI Tuesday – November CPI, October retail sales Thursday – October GDP

Australia: Friday – Nov. house price change, Nov. private sector credit

China: Monday – Nov. Industrial profits, Nov. leading index Friday – Dec. MNI business condition survey

WEEKLY OUTLOOK - Week of December 19, 2010

noreply@blogger.com (MSII) — Sun, 19 Dec 2010 04:31:00 +0000

Highlights
US tax cut/stimulus passage strengthens US outlook
EU summit fails to address short term debt concerns
The BOE stuck between a rock and a hard place
Commodities remain firm – Even when faced with USD strength
Key data and events to watch next week
US tax cut/stimulus passage strengthens US outlook

The USD finished the week at its best levels since the Dec. 1 high and may be set for further gains. With the passage of the tax cut extensions and accompanying stimulus measures, political uncertainty over the US outlook has been resolved favorably and markets are increasingly drawn to the buck on better relative growth prospects. US Treasury yields initially popped higher as the compromise was viewed as a deficit disaster, but price action this week suggests US rates may have seen a significant top. A prominent 'shooting star' is evident on the weekly candlestick charts, a bearish reversal pattern after a rally. Falling US yields may provide some headwinds to a higher USD, but we think the effects will mostly be seen in USD/JPY, which now looks firmly capped below 84.50, either declining or not gaining alongside USD strength elsewhere. As well, EUR/USD also posted a prominent weekly 'shooting star' and was rejected from the top of the weekly Ichimoku cloud at 1.3511 and is closing the week below the weekly Kijun line at 1.3217. EUR/USD is already below the daily cloud, suggesting the path lower remains open. While we are mindful of the potential for range conditions to persist as we head into the holidays, a daily close below the 1.3102 200-day mov. avg. suggests to us that recent 1.2980 lows will soon be tested and likely fail, opening up potential lower to the 1.26/27 area next.

EU summit fails to address short term debt concerns

EU leaders adopted language to amend the EU constitution (technically the Lisbon Treaty) to allow for a permanent resolution mechanism in the event of a sovereign default or insolvency after the expiration of the EFSF in mid-2013. But concrete details of how the mechanism would work (esp. over how much private bond investors would be at risk) were noticeably lacking. EU finance ministers are expected to draft those procedures over the coming months. Most importantly, the impasse over the current crisis remains unresolved and continues to undermine confidence in the EUR. The core (Germany and France) remains opposed to increasing the size of the EFSF, leaving markets unsure whether enough funds are in place in case of a credit squeeze on larger EU nations like Spain or Italy. Spanish yields remain near their highs as investors balk at buying more government debt (a Spanish debt auction was undersubscribed this past week), increasing the chances that Spain will be shut out of markets. This leaves the ECB as the buyer of last resort, a role they increasingly don't want to play as it may undermine their hard-earned credibility. Against this backdrop, until there is a sufficient increase in the EFSF or more certainty of aid for Spain, the EUR is likely to remain under pressure.

The BOE stuck between a rock and a hard place

Data out of the UK was relatively mixed this week, but markets chose to focus on the negative. Better than expected retail sales (excluding autos and fuel) at +1.8% YoY seemingly evidenced resilient consumer spending as a source of strength for the British economy. However, the rise in the October ILO Unemployment Rate (3mths) to +7.9% (exp. steady at 7.7%) suggests a moderating labor market recovery. Further muddying the data picture this week was the November UK Nationwide Consumer Confidence Index which fell to 45 from 52, the lowest level in 20 months. The rise in the unemployment rate alongside a substantial drop in consumer confidence points to a bumpy ride ahead for the economic recovery. This is even more apparent considering the rise in retail sales is likely partially due to increased big-ticket spending ahead of the VAT increase in 2011, meaning demand has simply been shifted forward and may subsequently disappoint.

The Bank of England Minutes is set for release in the week ahead and is likely to confirm the MPC is stuck between a rock and a hard place. Inflation has picked up as seen in the November headline CPI uptick to 3.3% alongside expectations for 2011 by half a percent to 3.9%. However, the economic recovery has been ambiguous – the recovery in the industrial sector has made strides but housing and services continues to struggle. We expect the upcoming release of the Minutes to show no immediate policy or voting changes and to conclude that further data watch is necessary for future policy direction.

While the MPC may be on the fence in terms of the future of the UK economy, we believe considerable downside risks to growth may come to a head. Firstly, potential downside impacts of the January VAT hike have been brushed aside as largely insignificant. However, considering accelerating price gains and unemployment rates – the risk is for a larger than expected negative impact to consumer spending. Additional concerns arise from continuing problems facing peripheral Euro-zone economies. About 14% of the UK’s exports go to the peripheral countries (Portugal, Italy, Ireland, and Spain), which implies substantial risks to UK growth prospects. Further UK reliance on the health of a troubled euro-zone periphery can be seen in UK credit conditions. Ireland and Spain account for more than 16% of outstanding loans to UK households and 10% to corporations. An implosion in the Irish and Spanish banking sectors would have a considerable spillover effect to UK credit markets and subsequent negative pressures on growth figures.

Commodities remain firm – Even when faced with USD strength

While for some, to see gold and the dollar appreciate may seem strange, to us it seems increasingly likely. As European sovereign debt concerns continue to mount, gold and silver are likely to remain in high demand as investors look to diversify away from their euro’s (fiat money) in search of tangible currency alternatives. As if we didn’t need further reminding, earlier today Moody’s downgraded Ireland by 5 notches to Baa1 from Aa2 (the outlook remains negative) and this is just days after Moody’s placed Greece and Spain’s ratings on review for possible downgrades earlier in the week. On days where there is significant USD strength (ie: lower EUR/USD), look for commodities to take a bit of a dive initially but then once the currency pair stabilizes, look for commodities to rebound and take flight back higher. If you like to think outside the box, long XAU/EUR could be an attractive strategy to keep your eye on as it potentially profits from both gold strength and euro weakness.

Another commodity on our radar of late is oil. Last week the International Energy Agency noted an upward revision to their 2011 global oil demand forecast of +260,000 bbl/d or +1.6% YoY – which is largely in line with OPEC’s projections for oil demand growth of +1.3%. Additionally, this week’s D.O.E. report of weekly inventories showed U.S. stockpiles declined more than expected, by -9.85 million barrels, which is the largest drop in 8 years. Accordingly, we have revised our outlook for oil prices to the topside over the coming weeks as current market developments indicate considerable tightening in the oil market.

Key data and events to watch in the week ahead

United States: Monday – Nov. Chicago Fed Activity Index Tuesday – ABC Dec. 19 Consumer Confidence Wednesday – MBA Dec. 17, Mortgage Applications 3Q GDP, Personal Consumption, GDP Price Index, & Core PCE, Nov. Existing Home Sales, Oct. House Price Index Thursday – Nov. Durable Goods Orders, Personal Income, Personal Spending, & New Home Sales, Weekly Jobless Claims, Dec. Final U. of Michigan Confidence Survey

Euro-zone: Sunday – German Finance Ministry Nov. Monthly Report Monday – Oct. ECB Euro-zone Current Account, Dec. Advance EZ Consumer Confidence, German Nov. Producer Prices Tuesday – German Jan. GfK Consumer Confidence Survey Wednesday – German Nov. Import Price Index, German IFO Dec. Business Climate Survey, EU Entry Negotiations with Croatia

United Kingdom: Monday – Dec. GfK Consumer Confidence Survey, Tuesday – Nov. Public Finances Wednesday – Bank of England Minutes, 3Q Final GDP & Total Business Investment, 3Q Current Account Thursday – Nov. BBA Loans for House Purchase

Japan: Monday – Oct. Final Coincident & Leading Indexes, Nov. Tokyo & Nationwide Department Store Sales, Nov. Convenience Store Sales Tuesday – Oct. All Industry Activity Index, Nov. BOJ target rate Wednesday – Nov. Trade Balance, BOJ/cabinet office monthly Economic Report, Nov. Supermarket Sales

Canada: Monday – Oct. Wholesale Sales Tuesday – Nov. CPI, October Retail Sales Thursday – Oct. GDP

Australia & New Zealand: Monday – New Zealand Nov. Performance Services Index Tuesday – New Zealand Nov. Net Migration, Australia Oct. Conference Board Leading Indicator, RBA Dec. Minutes, New Zealand Nov. Credit Card Spending Wednesday – New Zealand 3Q Current Account, Australia Oct. Westpac Leading Index Thursday – New Zealand 3Q GDP Friday – New Zealand Money Supply M3

weelkly outlook Week of December 12, 2010

noreply@blogger.com (MSII) — Wed, 15 Dec 2010 01:41:00 +0000

Highlights
US tax cut compromise buoys the buck
Europe’s leaders shimmy up to a “fiscal harmony”
Further tightening out of China
Dovish outlook to weigh on the kiwi
Key data and events to watch next week
US tax cut compromise buoys the buck

The greenback has bounced back after the announcement of a compromise on extending the Bush tax cuts was reached between the White House and congressional Republicans. First off, we would note that this is not yet a 'done deal' and Democratic opposition could still sink the plan. In the end, though, we think they'll hold their noses and adopt the plan, as the alternative--tax rates rising to start the year--is nearly unthinkable.

The tax compromise has benefitted the USD in two important ways, which hold the keys to the USD outlook ahead. The first is that the tax cuts amount to another dose of fiscal stimulus, which just a week ago seemed an impossibility, and improves the near-term growth outlook for the US economy. Economists are raising 2011 GDP estimates by 0.5-1.0%, looking for somewhere between 3.0-4.0% GDP for the full year. Better growth prospects, in turn, reduce the likelihood that the Fed may need to do the full amount of QE2 and reduces the potential for QE3, removing major dollar negatives for the time being. The second effect was for US yields to rally sharply, providing interest rate support for the USD, again on the back of better prospects for growth and the need for higher rates sooner. We think a fair amount of the back-up in US rates is due to year-end positioning reductions, and we would note that many of the best performing asset classes (e.g. metals and commodities) saw similar set-backs in the past week. (On that note, thinner year-end liquidity conditions are becoming more apparent across all markets.)

We also remain cautious on the prospects for growth to materialize quickly in a way that meaningfully improves the jobs outlook, which is the key to US rates eventually moving higher. As such, we think US rates will eventually begin to drift lower and may have already peaked below key 3.35/3.40% resistance in the 10-year yield. If so, the upside for the USD might be limited in the near-term, especially in USD/JPY where key 84.50/85.00 resistance remains intact. If the US tax cut plan is eventually adopted, we would reckon with a final knee-jerk rally in the USD as political uncertainty is resolved, but after that we would anticipate some give back. If the plan is scuttled by politics, the USD is expected to suffer greatly. We would also note the near complete absence, so far at least, of USD-negative impact from the higher US deficits the tax cuts entail. But we think such concerns will also likely restrain USD strength in the near-term.

While the Fed is likely pleased that additional fiscal stimulus may be forthcoming, they are no doubt unhappy with higher US rates, which is at complete odds to its asset purchase program. At next week's Fed meeting on Tuesday, we expect the Fed to be at great pains to talk down US rates and we think they'll firmly commit to buying however much is needed to keep rates low. Fed assurances that rates will remain low for an extended period should also work against further moves higher in US yields, likely limiting the dollar's upside. The biggest risks to an extended USD rally mostly come from external developments, namely the European debt crisis or excessive Chinese tightening discussed below.

Europe’s leaders shimmy up to a “fiscal harmony”

It’s been another interesting week for the Eurozone. While pressure has eased a little on the troubled peripheral nations such as Portugal and Spain, a permanent solution to Europe’s debt crisis still remains a long way off. One idea that has divided Europe is the issuance of common euro-area bonds. This would tie the borrowing costs of the stronger core nations with the weaker peripheral nations and spread credit risk between all members.

While this would no doubt be beneficial to the weaker economies of Ireland, Greece, Portugal and Spain who would be able to borrow money at cheaper rates, the upside is more limited for the core economies, especially Germany, who would see its borrowing costs rise.

This idea, although touted by Jean-Claude Juncker, President of the EU, was effectively ruled out on Friday when Germany’s Angela Merkel and French President Nicolas Sarkozy rejected the idea during a joint press conference saying that it would make governments less fiscally responsible. Instead they called on individual nations to get their fiscal houses in order and restore economic competitiveness. They also said there was no need to top up the European Financial Stability Fund (EFSF), which currently stands at EUR440bn. This stands at odds with the European Central Bank, who has called for leaders to increase the size of the bailout fund as a way to wean weaker European banks off the Central Bank’s cheap financing.

However, it was reported on Friday that Ireland’s financial sector is still addicted to ECB funding. Irish lenders received EUR136bn in loans from the ECB and the Irish Central Bank up to November 26 – just after it applied for the emergency funds. Until the bailout loan is actually in the bag (currently Irish lawmakers are still voting on the 2011 Budget, which needs to get passed before the funds will be released) and there is more clarity on the banking sector’s restructuring plans then Irish lenders are likely to have to continue to resort to the ECB in order to meet their financing needs.

One interesting development from Friday’s Franco-German summit was the commitment from Merkel and Sarkozy to converge their tax policies to the peripheral nations to help them become more competitive. They also said that next year they would present structural proposals to bring greater economic coordination to the euro area. Although far from fiscal union, it is a stab at fiscal harmony, which many believe is necessary to ensure the survival of the Euro area project.

The details of greater economic coordination were not elaborated on, and we don’t expect to hear anything too interesting at next week’s EU Summit on 16-17 December. However, Europe’s authorities are making slow but sure progress toward understanding that the market won’t accept a piecemeal approach to this sovereign debt crisis, and instead a comprehensive solution needs to be found.

Europe’s problems are far from resolved, and we don’t expect there to be any great break through at next week’s summit. EURUSD could dip to 1.3105 before it finds support at its 200-day simple moving average. However, any positive signals from the summit that Europe’s leaders are willing to do what it takes to resolve this crisis and get the Eurozone on a more sustainable footing could provide a temporary boost to sentiment. But EURUSD is unlikely to rise above 1.3420 – the recent high, and in our view the grind lower in EURUSD is set to continue.

Further tightening out of China

China represents a sizeable portion of the global growth outlook. Today’s Chinese trade data came in stronger than expected (exports rose 34.9% YoY vs. 22.9% in October and imports gained 37.7% YoY vs. 25.3%) and further underpins the global economic recovery. However, China now faces a more pressing issue with the task of controlling inflation and an overheated real estate market. In response, earlier today the People’s Bank of China raised their reserve requirement ratio (RRR) by 50 basis points in efforts to further address these issues. Nevertheless, without firmer measures to try to cool growth, such as meaningful interest rate hikes and more flexibility to allow the yuan to appreciate, then markets are unlikely to conclude that China’s growth will slow anytime soon. This weekend the November CPI (a measurement of inflation) is expected to rise to 4.7% from 4.4% in October and economists are anxiously awaiting news on a possible interest rate hike in response. In this instance, we think there would be little harm in raising interest rates from their current low levels as it would be consistent with the PBoC’s desire to “normalize” policy.

As China tightens to manage liquidity and control inflation, we may see periodic setbacks in risk sentiment as well as dips in commodity prices and the prices of commodity-linked currencies (Gold, Silver, AUD, CAD and equities). Any such pullbacks are likely to be short lived and in our opinion should be viewed as potential buying opportunities.

Dovish outlook to weigh on the kiwi

We expect the kiwi (NZD) to underperform after a dovish shift in the Reserve Bank of New Zealand’s (RBNZ) monetary policy stance. The Monetary Policy Statement (MPS) issued by the RBNZ was downbeat and noted that the near-term outlook for GDP has softened. This was highlighted by below average investment, weak household spending, and a slowing housing market. The MPS went on to state that “interest rates are likely to increase modestly over the next two years, for now it seems prudent to keep the OCR low until the recovery becomes more robust and underlying inflationary pressures show more obvious signs of increasing." Additionally, the bank stated its concern that a strong New Zealand dollar is negatively impacting exports.

The RBNZ also urged the government to eliminate the fiscal deficit to ease current pressures on interest rates and the New Zealand dollar. This is likely in response to the recent move by S&P to revise its outlook on New Zealand from stable to negative as the country has become increasingly reliant on foreign debt. The RBNZ revised down its forecast for the 90-day bank bill rate to provide further evidence of maintaining steady rates. We believe that this, along with the downbeat economic outlook and widening fiscal imbalances is likely to weigh on the New Zealand dollar. As such, we would view NZD strength as sell opportunities with a bias lower. In NZD/USD, the daily Tenkan line is currently around 0.7535/40 to provide immediate resistance. A move above the convergence of the 21 and 55-day simple moving averages which is around 0.7590-0.7600 may see to the daily ichimoku cloud top and prior highs around 0.7675. Key levels to the downside include the 100-day sma which is currently around 0.7400/10, the 0.7350 pivot, and 200-day sma currently around 0.7220.

Key data and events to watch in the week ahead

United States: Tuesday – Nov. Advance Retail Sales, Nov. Producer Price Index, Oct. Business Inventories, FOMC Rate Decision, Dec. 12 ABC Consumer Confidence Wednesday – Dec. 10 MBA Mortgage Applications, Nov. Consumer Price Index, Dec. Empire Manufacturing, Oct. Total Net TIC Flows, Nov. Industrial Production, Nov. Capacity Utilization, Dec. NAHB Housing Market Index, Fed’s Lockhart speaks on Atlanta regional economy Thursday – Nov. Housing Starts, Nov. Building Permits, 3Q Current Account Balance, Weekly Jobless Claims, Dec. Philadelphia Fed Business Outlook Survey, Geithner testifies at Congressional Oversight Panel Friday – Nov. Leading Indicators

Euro-zone: Monday – German Finance Minister Schaeuble speaks on Berlin Panel , EU Foreign Ministers Meeting Tuesday – EZ Oct. Industrial Production and Dec. ZEW Survey of Economic Sentiment, German Dec. ZEW Surveys of Economic Sentiment and Current Situation, Germany’s Ifo Economic Institute Publishes Economic Forecasts Wednesday – EZ 3Q Employment, European Commission Issues Quarterly Report on Euro Area Thursday – EZ Dec. PMI Composite, Manufacturing, and Services, EZ Nov. CPI, German Dec. A Manufacturing and PMI Services, EU Summit Friday – EZ Oct. Construction Output, EZ Oct. Trade Balance, German IFO-Business Climate, Current Assessment, and Expectations, EU Summit, ECB’s Weber speaks in Munich on Capital Markets Macroeconomic Perspectives

United Kingdom: Monday – Nov. PPI Input NSA, Nov. RICS House Price Balance Tuesday – Oct. DCLG UK House Prices, Nov. CPI, Nov. Retail Price Index Wednesday – Nov. Claimant Count Change, Nov. Jobless Claims Change, Oct. ILO Unemployment Rate Thursday – Nov. Retail Sales, Nov. Nationwide Consumer Confidence, BOE Releases Inflation Attitudes Survey

Japan: Monday – Oct. F Industrial Production, Oct. F Capacity Utilization, Nov. Tokyo Condominium Sales Tuesday – Oct. Tertiary Industry Index; 4Q Tankan Large Manufacturers, Non-Manufacturing, Large Manufacturing Outlook, Non-Manufacturing Outlook, Large All Industry Capex

Canada: Monday – 3Q Capacity Utilization Rate, BoC’s Carney gives speech on ‘Reflections on the Economic Outlook’ Tuesday – Nov. Leading Indicators, 3Q Labor Productivity Wednesday – Oct. Manufacturing Sales Thursday – Oct. International Securities Transactions

Australia & New Zealand: Sunday – NZ Nov. Food Prices Monday – Australia 3Q Dwelling Starts, Australia Nov. NAB Business Conditions & Confidence, NZ Oct. Retail Sales, NZ Nov. Non Resident Bond Holdings, NZ Nov. REINZ Housing Price Index Tuesday – Australia Dec. Westpac Consumer Confidence, Australia Dec. DEWR Skilled Vacancies, Australia Nov. New Motor Vehicle Sales Wednesday – Australia Dec. Consumer Inflation Expectation, Reserve Bank’s Bulletin – Dec. Quarter 2010, NZ Nov. Business PMI, NZ Dec. NBNZ Business Confidence & Activity Outlook Friday – RBA Nov. Foreign Exchange Transaction

China: Friday, Dec. 10 – Nov. Producer Price Index, Consumer Price Index, Retail Sales, Industrial Production, and Fixed Assets Investment Urban Cumulative Dec. 10-12 – China Central Economics Works Conference Dec. 11-15 – Nov. Actual FDI (YoY)

Weekly outlook up to Week of December 5, 2010

noreply@blogger.com (MSII) — Fri, 10 Dec 2010 04:06:00 +0000

Highlights
Is the USD back on the outs?
In a QE2 world…Is bad data now bad for the buck?
ECB avoids the knight in shining armor role
Interest rate decisions likely to be non-decisions
Key data and events to watch next week
Is the USD back on the outs?

The US Nov. employment report is widely described as disappointing, but we need to keep it in context. No one should have been expecting a sudden surge of job creation given still elevated jobless claims data, so why should we be so severely disappointed that the number came in about -100K below expectations? After all, the margin of error on NFP reports is easily +/- 100K and that leaves the Nov. number roughly within the range of expected outcomes. The jump in the unemployment rate is a psychological blow, for sure, but it's largely due to an increase in the labor force and not a meaningful indication of future job prospects. At the end of the day we are left with what we already knew to be the case: US labor markets remain depressed and are likely to stay so for many more months to come. Other US data continue to show encouraging signs that the US recovery is gaining traction, so we will take the Nov. jobs report with a grain of salt.

Across the pond, Eurozone debt concerns have taken a breather for the time being, but we don't think there has been any meaningful change in the debt dynamics of the Eurozone. The ECB increased its purchases of peripheral nation debt to combat panicky markets. The ECB will on Monday publish the amounts of bonds purchased and if the amounts are as large as expected, it could be viewed as unsustainable. We think it's only a matter of time before European debt fears trigger another wave of capital flight out of the EUR (see more below).

Broadly looking at various other asset markets, it appears that USD weakness has resurfaced as the catalyst to gains in other markets (see below). While there has been some technical damage done to the USD this past week, we think it may still be only a minor correction within an overall USD recovery. In particular, we would note the US dollar index was rejected from the bottom of its weekly Ichimoku cloud, and price has fallen back inside the daily cloud, both potentially USD bearish indications. Elsewhere, we would note that US stocks are hesitating at recent highs, alongside gold and silver, as potential signs of uncertainty in the risk rally. The CRB commodity index has closed the gap from Nov. 11-12 and faces resistance from prior highs around 320 as well. In short, we are on the cusp of a further break down in USD/higher in risk assets. However, given the negative outlook for the Eurozone debt crisis and the risks of an imminent tightening out of China, we prefer to maintain a dollar positive stance for the moment. It will not take much further USD weakness/risk strength to force us to reverse course, but for now we'll treat this is as a minor USD correction.

In a QE2 world…Is bad data now bad for the buck?

There’s no two ways about it, today’s U.S. November employment report came up lame of economists’ expectations – Nonfarm Payrolls +39k vs. exp. 150k; Unemployment rate 9.8% vs. exp. 9.6%. However, it appears there has been a paradigm shift in the market’s reaction to poor data with regards to the U.S. dollar. Over the last few years such a scenario would have seen considerable risk aversion. Typically, the response has been significantly lower equities, higher bonds (lower yields), higher USD vs. other currencies – outside of the JPY or CHF (risk averse currencies), and mixed vs. commodities depending on their mood. In terms of today’s price action, equities are only marginally lower, yields initially fell dramatically but have since stabilized, commodities have soared and the USD has been crushed across the G10. In this post-QE2 environment, it seems the dynamics have changed for the dollar whereby positive US data is good and negative data is bad. This rationale is based on the belief that a faltering U.S. economy increases the likelihood of the Fed completing the entire $600 billion in asset purchases, which has been in question of late, and potentially brings the topic of QE3 back on the table.

From a technical perspective, earlier in the week the buck looked poised to make another run higher, however after today’s sell-off that has come into question in the week ahead. Luckily, support/resistance areas are well defined and with a light calendar upcoming next week, the market should broadly trade based on the technical’s. Key levels to note are as follows: EUR/USD resistance at 1.3450, USD/JPY support from 81.50-70, GBP/USD resistance near 1.5845, USD/CHF trendline support at 0.9640/50, USD/CAD support by 0.9980, AUD/USD resistance near 0.9950/60, EUR/JPY resistance around 111.50, AUD/JPY resistance at 83.00, Gold all-time highs $1425, Silver multi-decade highs $29.35 and Crude Oil resistance at $90.50 (September 2008 low). While these levels hold the USD rebound still remains plausible, however if they falter a significant reversal lower in the dollar and rally in risk would be expected into the holidays.

ECB avoids the knight in shining armor role

Europe dominated the first half of last week as details of the Irish bailout emerged along with an ECB meeting. The Irish bailout failed to be the panacea for the Europe’s peripheral debt markets. Instead it was left to ECB President Jean Claude Trichet to calm the markets and spark a rally in risky assets.

Even though Trichet was ambiguous about the degree of support the ECB is willing to lend to the peripheral nations during his monthly press conference, it has delayed its exit policy and increased its special liquidity operations until at least the first quarter of next year. This eases the immediate pressure on the peripheral nations’ banking sectors, some of which remain addicted to ECB funding. Trichet also said that its bond buying programme would remain open.

What Trichet failed to disclose was that the ECB was reportedly purchasing large amounts of Irish, Portuguese and Spanish government debt leading up to the ECB meeting. This complicates its strategy regarding the peripheral nations as it is saying one thing and doing another. At the moment markets seem to be giving the peripheral nations a break, and bond yields have been falling. However, the ECB’s extension of liquidity support is only a short-term fix. Spain has to raise over EUR100bn in the debt markets between Q2 and Q4 next year. If there are any signs that the Eurozone’s fourth largest economy is having difficulties funding itself in the capital markets then the ECB may have to extend its liquidity facilities or step up its bond-buying programme.

The FX markets have shrugged off peripheral debt fears for now. The euro has retraced more than 25 per cent of the down move that began at the start of November. A close above 1.3375 – Ichimoku cloud base, would herald further gains to 1.3450 – the 38.2 per cent retracement of the November move. While the single currency may continue its rally in the short-term, longer-term charts show that it is still in a down trend and we think any gains will prove to be temporary due to lingering sovereign concerns within the Eurozone.

Interest rate decisions likely to be non-decisions

The week ahead is chock full of interest rate announcements out of major economies beginning with Australia on Tuesday. Downside data surprises (Q3 GDP was +0.2 against expectations of +0.4%), potentially weakening external commodity demand as a result of China tightening, and subdued Q3 inflation are likely to see the RBA keep the target rate unchanged at 4.75%. However, we believe this to be a mere pause in the RBA’s tightening cycle and expect a continuation of rate hikes early next year. The Bank of Canada is up next on Tuesday and is likely to keep rates steady at 1% as economic growth has hit a brick wall. Stagnant job creation out of the U.S., Canada’s largest trading partner, as evidenced by the putrid NFP print is also likely to play a factor in the BoC’s decision. Furthermore, surprisingly weak 3Q GDP growth of +1% annualized may have Governor Carney and company questioning their decision to initiate a tightening policy earlier in the year. Thurs. morning local time/Wed. evening GMT sees New Zealand’s rate decision which is likely to remain unchanged at 3% with post-earthquake reconstruction and recent policy shifts keeping pressure on the NZ economy. The final major interest rate announcement is set for release on Thursday out of the UK. The BOE is likely to leave policy unchanged as inflation risks are offset by the weakening outlook ahead of government austerity measures beginning in 2011. The announcement is likely to be a non-event as the BOE typically does not comment when no policy changes are made.

Key data and events to watch in the week ahead

United States:

Monday – Fed’s Lacker speaks on Economic Outlook

Tuesday – Dec. IBD/TIPP Economic Optimism, Oct. Consumer Credit, Dec. ABC Consumer Confidence

Wednesday – Dec. MBA Mortgage Applications

Thursday – Weekly Jobless Claims, Oct. Wholesale Inventories

Friday – Oct. Trade Balance, Nov. Import Price Index, Dec. Preliminary U. of Michigan Confidence, Nov. Monthly Budget Statement

Euro-zone

Monday – Euro-Area Finance Ministers meet in Brussels, Dec. Sentix Investor Confidence

Tuesday – Oct. German Factory Orders

Wednesday – Oct. German Current Account, Oct. German Trade Balance, Oct. German Industrial Production

Thursday – Nov. German Consumer Price Index

Friday – EU’s Rehn gives speech in Athens

United Kingdom

Tuesday – BRC retail sales monitor, Oct. Industrial Production, Oct. Manufacturing Production

Wednesday – BRC shop prices, Nov. Halifax House Prices

Thursday – BOE Interest Rate Announcement, Oct. Trade Balance

Friday – Nov. PPI Input & Output

Japan

Monday – Nov. Official Reserve Assets

Tuesday – Oct. Coincident Index, Oct. Leading Index, Oct. Current Account Total, Nov. Bank Lending, Oct. Trade Balance, Oct. Machines Orders, Nov. Bankruptcies

Wednesday – 3Q Final GDP (QoQ & YoY)

Thursday – Nov. Machine Tool Orders, 4Q BSI Large All Industry & Manufacturing, Nov. Domestic CGPI

Friday – Nov. Consumer Confidence

Canada:

Monday – Oct. Building Permits, Nov. Ivey Purchasing Managers Index

Tuesday – BoC Interest Rate Announcement

Wednesday – Nov. Housing Starts

Thursday – Oct. New Housing Price Index

Friday – Oct. International Merchandise Trade

Australia & New Zealand:

Monday – Australia Nov. AiG Perf of Construction Index, Nov.TD Securities Inflation, Nov. ANZ Job Advertisements

Tuesday – Australia RBA Interest Rate Announcement, New Zealand Nov. House Prices

Wednesday – Australia Oct. Home Loans and Investment Lending, New Zealand 3Q Manufacturing Activity

Thursday – Australia Nov. Employment Report, RBNZ Interest Rate Announcement, NZ Nov. Card Spending

Friday – NZ 3Q Terms of trade index

China:

Thursday – Nov. Trade Balance

MIG BANK - THE SWISS FOREX BANK MY LATEST FOREX STATEMENT MIGBANK .....

noreply@blogger.com (MSII) — Tue, 30 Nov 2010 03:21:00 +0000

MIG BANK - THE SWISS FOREX BANK MY LATEST FOREX STATEMENT MIGBANK ..... CLICK HERE

Forex Preview Movie

noreply@blogger.com (MSII) — Mon, 23 Nov 2009 07:14:00 +0000

Forex Income Headlines

noreply@blogger.com (MSII) — Tue, 21 Apr 2009 04:10:00 +0000

Forex Basics

noreply@blogger.com (MSII) — Tue, 21 Apr 2009 04:09:00 +0000

Forex Basics

If you've already read the "What is Forex?" section then you should know what Forex market is and what it is all about. If not, please, do it. There are five essential aspects of foreign currency market a beginner trader (and an old one as well) should be aware of:

* Forex Fundamental Analysis
* Forex Technical Analysis
* Money Management
* Forex Trading Psychology
* Forex Brokerage

Understanding and mastering these sides of trading are crucial to organize your Forex trading experience.

Forex Fundamental Analysis

Fundamental analysis is the process of market analysis which is done regarding only "real" events and macroeconomic data which is related to the traded currencies. Fundamental analysis is used not only in Forex but can be a part of any financial planning or forecasting. Concepts that are part of Forex fundamental analysis: overnight interest rates, central banks meetings and decisions, any macroeconomic news, global industrial, economical, political and weather news. Fundamental analysis is the most natural way of making Forex market forecasts. In theory, it alone should work perfectly, but in practice it is often used in pair with technical analysis. Recommended e-books on Forex fundamental analysis:

* Reminiscences of a Stock Operator
* What Moves the Currency Market?

Forex Technical Analysis

Technical analysis is the process of market analysis that relies only on market data numbers - quotes, charts, simple and complex indicators, volume of supply and demand, past market data, etc. The main idea behind Forex technical analysis is the postulate of functional dependence of the future market technical data on the past market technical data. As well as with fundamental analysis, technical analysis is believed to be self-sufficient and you can use only it to successfully trade Forex. In practice, both analysis methods are used. Recommended e-books on Forex fundamental analysis are:

* The Law Of Charts
* Candlesticks For Support And Resistance
* Trend Determination

Money Management in Forex

Even if you master every possible method of market analysis and will make very accurate predictions for future Forex market behavior, you won't make any money without a proper money management strategy. Money management in Forex (as well as in other financial markets) is a complex set of rules which you develop to fit your own trading style and amount of money you have for trading. Money management play very important role in getting profits out of Forex; do not underestimate it. To get more information on money management you can read these books:

* Risk Control and Money Management
* Money Management (A chapter from The Mathematics of Gambling)

Forex Trading Psychology

While learning a lot about market analysis and money management is an obvious and necessary step to be a successful Forex traders, you also need to master your emotions to keep your trading performance under strict control of mind and intuition. Controlling your emotions in Forex trading is often a balancing between greed and cautiousness. Almost any known psychology practices and techniques can work for Forex traders to help them keep to their trading strategies rather to their spontaneous emotions. Problems you'll have to deal while being a professional Forex trader:

* Your greed
* Overtrading
* Lack of discipline
* Lack of confidence
* Blind following others' forecasts

These are very professional books on psychology written specially for financial traders:

* Calming The Mind So That Body Can Perform
* Emotion Free Trading
* The Miracle of Discipline

Forex Brokerage

Every Forex trader like any other professional needs tools to trade. One of these tools, which is vital to be in market, is a Forex broker and specifically for Internet - on-line Forex broker - a company which will provide real-time market information to trader and bring his orders to Forex market. While choosing a right Forex broker things to look for are the following:

* Being a professional company you can trust
* Provide you with real-time quotes
* Execute your orders fast and accurately
* Don't take a lot of commissions
* Support the withdraw/deposit methods that you can use

For beginning Forex traders I recommend these four brokerage companies that are probably the best Forex brokers to start with:

* FXOpen — one of the most popular and progressive brokers with MetaTrader platform and comfortable trading conditions for all kind of traders. Click here to get more info on FXOpen

* InstaForex — a reputable MetaTrader 4 brokers, allows Islamic Forex trading accounts, while you can deposit and withdraw money via WebMoney. Click here to get more info on InstaForex

* FXcast — good because you can start trading Forex with as little as 10$, use MetaTrader 4 platform and the dozoen of various deposit and withdraw methods, including WebMoney, e-Bullion and wire transfer. Click here to get more info on FxCast

* LiteForex — broker that supports MetaTrader 4 Forex trading platform and doesn't require a lot of money to start with. Click here to get more info on Liteforex

Expert Advisor / Automated Trading / Forex Robot

noreply@blogger.com (MSII) — Tue, 21 Apr 2009 03:56:00 +0000

What is an Expert Advisor ?

A Forex Expert Advisor (a.k.a. Forex Trading Robot, EA, MT-4 EA, Automated Forex Trading Software) is a mechanical trading system written in the MQL-4 programming language and designed to automate trading activities on the MetaTrader 4 platform. Expert Advisors can be programmed to alert you of a trading opportunity and can also trade your account automatically managing all aspects of trading operations from sending orders directly to your broker’s server to automatically adjusting stop loss, trailing stops and take profit levels.

Expert Advisors for MetaTrader 4 are all unique and different in the rules they follow to enter and exit the market. Expert Advisors eliminate emotional trading decisions that cripple novice trading accounts. Forex Expert Advisors allow investors to exercise a very strict trading system without falling outside pre-programmed parameters and it is this rock solid consistency one of the features that make these programs so attractive to serious investors. Am Expert Advisors can also eliminate the emotional trading decisions that usually cripple novice Forex trading accounts. Forex Expert Advisors exercise unmatched discipline when trading and can be designed to evaluate more parameters at the same time than any human could keep an eye on at once.

All of the technical indicators that are available in the MT-4 platform can be brought to bear in the logic used by an Expert Advisor in almost any way that one can think of thanks to the MQL-4 programming language. All types of moving averages (simple, exponential, etc.), RSI, CCI, etc. You can also create your own custom indicator and call upon it from an Expert Advisor.

There are many different types of MT-4 Expert Advisors depending on their intended application. Some are designed specifically to trade news events and remain out of the market all other times while other MT-4 Expert Advisors are meant to remain active 24x7. Experienced traders who have their own fine tuned manual trading systems sometimes hire MQL-4 programmers to automate their systems thereby creating custom MT-4 Expert Advisors. All expert advisors have the same goal and that is to automate trading operations and generate a profit while doing so.

Expert Advisors make use of technical indicators in order to assess market conditions and make trading decisions. In order for the Expert Advisor to work, it must be attached to an individual chart on the MetaTrader 4 Forex trading platform. An MT-4 Expert Advisor can take into consideration dozens of different factors in an instant in order to decide what to do next. This ability to consider such a broad range of price influencing factors coupled with the discipline of a mechanical trading system devoid of emotion leads to a very successful trading combination.

Throughout the pages of this web site you will find more detailed information about Forex Expert Advisors. If you have a question about Forex Expert Advisors for the MetaTrader 4 platform and you don’t see it here please send us an email and we will try our best to respond as soon as possible.

How does a Forex Expert Advisor work ?

The program works by calculating the different indicators that it was designed to use and take actions when the market conditions meet the correct criteria as described in the source code of the Expert Advisor.

Fore Example. A simple expert advisor may say something like this:

"If the 9 and 20 day moving averages cross with the 9 day MA above the 20 MA and the RSI is higher than 50 then open a long position (buy)"

That is just an example. You can assign countless conditions for entering and exiting the market as well as managing trades for trailing stops and multiple take profit levels.

An MT-4 Expert Advisor is usually divided into three parts: A startup or ‘init’ function, a main function and a ‘deinit’ or cleanup function. The Expert Advisor will run through its startup function once upon startup and will run through its ‘deinit’ or clean-up function once at the end. In the mean time, the MT-4 Expert Advisor program runs through a cycle of its main function over and over with every incoming tick while it is attached to a chart and active. Once running, the Expert Advisor will not start another cycle for a new tick if it is still in the middle of processing the previous one.

Here is a simple outline of what a simple expert advisor could be programmed to do.

(This would be the 'main' part of the EA and takes place every time a tick comes in.)

1- Check my account. Is there enough equity to open a trade? if so, continue. If not, end.

2- Are there any open trades right now?

2a- If there are, do they need to be closed or do they need their trailing stop adjusted? (do so if needed and exit.)

2b- If there are no open trades, are the market conditions right to open one? (do so if needed and exit. )

3- End.

How to use an Expert Advisor

In order to make use of an Expert Advisor you have to install it on MetaTrader and then attach it to the appropriate chart on MetaTrader 4. This is fairly simple as will be described below. If there are any instructions included with your Expert Advisor you should read them in their entirety.

#1- First, you have to put the Expert Advisor in a place where MetaTrader 4 will be able to use it. In most installations of MetaTrader 4 that place is C:\Program Files\MetaTrader 4\experts The actual Expert Advisor is a file without an icon that ends with .EX4

#2- Now that the Expert Advisor is in the correct location within your computer, re-start MetaTrader 4.

#3- When MetaTrader 4 starts up again you will now see the new Expert Advisor on the left navigation menu.

Learn to Make your own Expert Advisors

In order to make your own expert advisor you have to learn the MQL-4 programming language. If you already know C programming then MQL-4 will be very easy as they are quite similar. If you do not know either language, it would be prudent to take a course in C programming. Then, once you understand the structure of C language, MQL-4 will be a snap. If you are not a programmer, do not let this stop you from learning to make your own Expert Advisors.

The following web site has all the official documentation on the MQL-4 programming language.

http://docs.mql4.com

The Different Types of Expert Advisors

There are various different types of Expert Advisors for the MetaTrader 4 platform. Here we will discuss some of the more common types. This is by no means a comprehensive list. There can be other types of Expert Advisors based on the creativity of the programmers who make them.

News Expert Advisor - This is a type of hedging EA. The News EA is designed to take advantage of news events and the large price shifts that can occur during financial news releases.

Breakout Expert Advisor - Designed to open a trade when the price breaks through predefined support and resistance levels.

Hedge Expert Advisor - This is any EA that plays two separate and opposing positions and minimizes the loss on one while facilitating maximum profit on the good trade.

Scalper Expert Advisor - This is the type of EA that will get your account canceled or at least heavily restricted by a broker. It aims to secure small profits as soon as they are available.

NEW! Adaptive Expert Advisor - A new type of Expert Advisor as taken front an center in the struggle for profits. This second generation EA is much more adaptive to its environment than its predecessors and hence much more profitable.

Traditional Expert Advisors are static. You plug in some parameters and the Expert Advisor goes to work with those parameters and makes no adjustments for changes in the market or its own win/loss ratio. This is a rudimentary approach to the challenge. Many folks attempt to find good settings and although they often find parameters that are profitable on the short term, they ultimately fail to find settings that are consistently profitable over time because the systems simply do not have the capability to adapt to the changing market.

Enter Adaptive Expert Advisors or Second Generation EAs.

Adaptive EA are systems that are capable of perceiving their environment, categorizing it and using the resulting information to make adjustments to their own operations with the purpose of achieving higher profitability with minimum draw down.

There are different ways to accomplish this. Some EA use automated optimization, others use multiple money-management systems that are triggered at different times depending on the situation. Some, like HalcyonFX’s new M7 Sidewinder PRO, do all of the above.

Intelligent systems like Sidewinder are new to the market and have had very little exposure to mass trading which makes them even more attractive as fresh, unspoiled systems are often more profitable than the beaten down ones that have already been around the block a while already. However, because of their relative novelty, there is virtually no long term data to firmly determine their benefits over traditional systems.

What is MQL-4 ?

MQL-4 is short for Meta Quotes Language version 4. This is the programming language created by MetaQuotes Software Corp. (http://www.metaquotes.net) that automates the MetaTrader client terminal.

The following web site has all the official documentation on the MQL-4 programming language.

http://docs.mql4.com

*What is MetaTrader 4 ?

MetaTrader 4 is a free trading platform developed by MetaQuotes Software Corp. (http://www.metaquotes.net) and supported by many different Forex brokers all over the world. MetaTrader 4 easy to learn and very user friendly.

One of the unique qualities of MetaTrader 4 is the ability to automate trading activities through the use of an Expert Advisor.

Can I run more than one Expert Advisor on the same account/client terminal ?

Yes. You can run multiple instances of an Expert Advisor on the same MetaTrader 4 client terminal. As long as all of the Expert Advisors that you are running in the same client terminal have been designed to get along with each other on the same terminal. (not all Expert Advisors can get along on the same terminal) Mainly because they will try to manage each other’s open trades. Programmers get around this by using magic numbers in the market entrance part of the source code of the Expert Advisor.

There are also platform limitations. Only one Expert Advisor can communicate with the trading server at any one time. If multiple Expert Advisors are active on the same terminal and more than one try to communicate with the trading server you will get "Trade context busy" errors in the logs when this happens if you have too many Expert Advisors on one client terminal.

Click Here To go to Top 100 Forex Robot Reviews & Download!

Top 40 Forex Robot Reviews

noreply@blogger.com (MSII) — Sat, 11 Apr 2009 08:02:00 +0000

What is a Forex Robot? (Expert Advisor)

Automated or automatic forex can be defined as the ability to trade forex with the use of a trading program or forex trading robot , without needing a human to physically trade a forex system. With forex, automated trading is an emerging field that began not that long ago.

There are 2 general categories of automated trading:

1. Automated trading through managed forex . Some, though not all, forex managed accounts are traded via automated forex. In either case, the trading is passive in that you don't have to do it. But in the case of automated forex, the trading program or robot executes the trades of their trading system, rather than a human team.

2. When you program your own or someone else's forex system into a program with programming and automatic trading abilities such as WealthLab , or other trading program. Wealth Lab required programming skills (the programming language used is similar to Pascal), while other programs just emerging that will allow you to select parameters and test your system performance.
Advantages of automatic forex trading systems (Forex Robots)

1. You do not have to physically trade the system.

2. Automated trading can take trades at anytime of the day or night. This is particularly important for systems where the performance is increased when taking a majority of trades in the system, which occurs in systems where trading opportunities occur at times when the person may be sleeping or otherwise cannot get to the computer. So being available for trading 24 hours a day, unlike a trader can, will the profitablility of these systems.

3. You can trade multiple systems , such as systems that rely on different types of indicators, or which trade shorter or longer time frames, in order to diversify risk, as well as to smoothen out your equity curve and reduce drawdown.

4. An automated system is unaffected by a trader's psychology , which can sometime cause a system to be not traded properly. If your trader discretion causes you to improve performance, then that is fine, but if it causes a worse performance than if you traded the system mechanically, then this is an issue that is overcome by automated forex.

5. Enables the development of new systems that may be difficult for a human to trade, such as systems with a high frequency of trades using tick data. Designing a system is no longer be limited by how practical or easy it is for a person to trade it.

These benefits of automated forex of course is based on the fact that:

• You have chosen a profitable forex system and has acceptable drawdown, as evidenced by historical performance.

• The forex system is not just mechanical, but is fully programmable .

• You are aware, with either active trading or automated trading, that you must monitor the performance to see that the system is still working as well as its past performance.

This information about Forex Expert Advisors that run on the MetaTrader 4 trading platform.

What is an Expert Advisor ?

A Forex Expert Advisor (a.k.a. Forex Trading Robot, EA, MT-4 EA, Automated Forex Trading Software) is a mechanical trading system written in the MQL-4 programming language and designed to automate trading activities on the MetaTrader 4 platform. Expert Advisors can be programmed to alert you of a trading opportunity and can also trade your account automatically managing all aspects of trading operations from sending orders directly to your broker’s server to automatically adjusting stop loss, trailing stops and take profit levels.

Expert Advisors for MetaTrader 4 are all unique and different in the rules they follow to enter and exit the market. Expert Advisors eliminate emotional trading decisions that cripple novice trading accounts. Forex Expert Advisors allow investors to exercise a very strict trading system without falling outside pre-programmed parameters and it is this rock solid consistency one of the features that make these programs so attractive to serious investors. Am Expert Advisors can also eliminate the emotional trading decisions that usually cripple novice Forex trading accounts. Forex Expert Advisors exercise unmatched discipline when trading and can be designed to evaluate more parameters at the same time than any human could keep an eye on at once.

All of the technical indicators that are available in the MT-4 platform can be brought to bear in the logic used by an Expert Advisor in almost any way that one can think of thanks to the MQL-4 programming language. All types of moving averages (simple, exponential, etc.), RSI, CCI, etc. You can also create your own custom indicator and call upon it from an Expert Advisor.

There are many different types of MT-4 Expert Advisors depending on their intended application. Some are designed specifically to trade news events and remain out of the market all other times while other MT-4 Expert Advisors are meant to remain active 24x7. Experienced traders who have their own fine tuned manual trading systems sometimes hire MQL-4 programmers to automate their systems thereby creating custom MT-4 Expert Advisors. All expert advisors have the same goal and that is to automate trading operations and generate a profit while doing so.

Expert Advisors make use of technical indicators in order to assess market conditions and make trading decisions. In order for the Expert Advisor to work, it must be attached to an individual chart on the MetaTrader 4 Forex trading platform. An MT-4 Expert Advisor can take into consideration dozens of different factors in an instant in order to decide what to do next. This ability to consider such a broad range of price influencing factors coupled with the discipline of a mechanical trading system devoid of emotion leads to a very successful trading combination.

Throughout the pages of this web site you will find more detailed information about Forex Expert Advisors. If you have a question about Forex Expert Advisors for the MetaTrader 4 platform and you don’t see it here please send us an email and we will try our best to respond as soon as possible.

How does a Forex Expert Advisor work ?

The program works by calculating the different indicators that it was designed to use and take actions when the market conditions meet the correct criteria as described in the source code of the Expert Advisor.

Fore Example. A simple expert advisor may say something like this:

"If the 9 and 20 day moving averages cross with the 9 day MA above the 20 MA and the RSI is higher than 50 then open a long position (buy)"

That is just an example. You can assign countless conditions for entering and exiting the market as well as managing trades for trailing stops and multiple take profit levels.

An MT-4 Expert Advisor is usually divided into three parts: A startup or ‘init’ function, a main function and a ‘deinit’ or cleanup function. The Expert Advisor will run through its startup function once upon startup and will run through its ‘deinit’ or clean-up function once at the end. In the mean time, the MT-4 Expert Advisor program runs through a cycle of its main function over and over with every incoming tick while it is attached to a chart and active. Once running, the Expert Advisor will not start another cycle for a new tick if it is still in the middle of processing the previous one.

Here is a simple outline of what a simple expert advisor could be programmed to do.

(This would be the 'main' part of the EA and takes place every time a tick comes in.)

1- Check my account. Is there enough equity to open a trade? if so, continue. If not, end.

2- Are there any open trades right now?

2a- If there are, do they need to be closed or do they need their trailing stop adjusted? (do so if needed and exit.)

2b- If there are no open trades, are the market conditions right to open one? (do so if needed and exit. )

3- End.

How to use an Expert Advisor

In order to make use of an Expert Advisor you have to install it on MetaTrader and then attach it to the appropriate chart on MetaTrader 4. This is fairly simple as will be described below. If there are any instructions included with your Expert Advisor you should read them in their entirety.

#1- First, you have to put the Expert Advisor in a place where MetaTrader 4 will be able to use it. In most installations of MetaTrader 4 that place is C:\Program Files\MetaTrader 4\experts The actual Expert Advisor is a file without an icon that ends with .EX4

#2- Now that the Expert Advisor is in the correct location within your computer, re-start MetaTrader 4.

#3- When MetaTrader 4 starts up again you will now see the new Expert Advisor on the left navigation menu.

Learn to Make your own Expert Advisors

In order to make your own expert advisor you have to learn the MQL-4 programming language. If you already know C programming then MQL-4 will be very easy as they are quite similar. If you do not know either language, it would be prudent to take a course in C programming. Then, once you understand the structure of C language, MQL-4 will be a snap. If you are not a programmer, do not let this stop you from learning to make your own Expert Advisors.

The following web site has all the official documentation on the MQL-4 programming language.

http://docs.mql4.com

The Different Types of Expert Advisors

There are various different types of Expert Advisors for the MetaTrader 4 platform. Here we will discuss some of the more common types. This is by no means a comprehensive list. There can be other types of Expert Advisors based on the creativity of the programmers who make them.

News Expert Advisor - This is a type of hedging EA. The News EA is designed to take advantage of news events and the large price shifts that can occur during financial news releases.

Breakout Expert Advisor - Designed to open a trade when the price breaks through predefined support and resistance levels.

Hedge Expert Advisor - This is any EA that plays two separate and opposing positions and minimizes the loss on one while facilitating maximum profit on the good trade.

Scalper Expert Advisor - This is the type of EA that will get your account canceled or at least heavily restricted by a broker. It aims to secure small profits as soon as they are available.

NEW! Adaptive Expert Advisor - A new type of Expert Advisor as taken front an center in the struggle for profits. This second generation EA is much more adaptive to its environment than its predecessors and hence much more profitable.

Traditional Expert Advisors are static. You plug in some parameters and the Expert Advisor goes to work with those parameters and makes no adjustments for changes in the market or its own win/loss ratio. This is a rudimentary approach to the challenge. Many folks attempt to find good settings and although they often find parameters that are profitable on the short term, they ultimately fail to find settings that are consistently profitable over time because the systems simply do not have the capability to adapt to the changing market.

Enter Adaptive Expert Advisors or Second Generation EAs.

Adaptive EA are systems that are capable of perceiving their environment, categorizing it and using the resulting information to make adjustments to their own operations with the purpose of achieving higher profitability with minimum draw down.

There are different ways to accomplish this. Some EA use automated optimization, others use multiple money-management systems that are triggered at different times depending on the situation. Some, like HalcyonFX’s new M7 Sidewinder PRO, do all of the above.

Intelligent systems like Sidewinder are new to the market and have had very little exposure to mass trading which makes them even more attractive as fresh, unspoiled systems are often more profitable than the beaten down ones that have already been around the block a while already. However, because of their relative novelty, there is virtually no long term data to firmly determine their benefits over traditional systems.

What is MQL-4 ?

MQL-4 is short for Meta Quotes Language version 4. This is the programming language created by MetaQuotes Software Corp. (http://www.metaquotes.net) that automates the MetaTrader client terminal.

The following web site has all the official documentation on the MQL-4 programming language.

http://docs.mql4.com

*What is MetaTrader 4 ?

MetaTrader 4 is a free trading platform developed by MetaQuotes Software Corp. (http://www.metaquotes.net) and supported by many different Forex brokers all over the world. MetaTrader 4 easy to learn and very user friendly.

One of the unique qualities of MetaTrader 4 is the ability to automate trading activities through the use of an Expert Advisor.

Can I run more than one Expert Advisor on the same account/client terminal ?

Yes. You can run multiple instances of an Expert Advisor on the same MetaTrader 4 client terminal. As long as all of the Expert Advisors that you are running in the same client terminal have been designed to get along with each other on the same terminal. (not all Expert Advisors can get along on the same terminal) Mainly because they will try to manage each other’s open trades. Programmers get around this by using magic numbers in the market entrance part of the source code of the Expert Advisor.

There are also platform limitations. Only one Expert Advisor can communicate with the trading server at any one time. If multiple Expert Advisors are active on the same terminal and more than one try to communicate with the trading server you will get "Trade context busy" errors in the logs when this happens if you have too many Expert Advisors on one client terminal.

Click Here To go to Top 100 Forex Robot Reviews & Download!

Gold And Oil Trade

noreply@blogger.com (MSII) — Mon, 02 Mar 2009 12:23:00 +0000

Gold Trading Basics

In the last 20 years, trading has become far easier for the average person. No longer do we need to telephone our broker and buy full contracts of whatever it is we are trading, no longer do we have to wait for that broker to actually find somebody to take the other end of our trade, no longer do we have to pay large commissions and no longer do we have to pay hundreds of dollars a month for data feeds.

In the last five years, there has been a dramatic rise in the number of excellent online brokers with user-friendly interfaces, no commission, minute differences between the buy and sell price, instant one-click execution and either tiny fractions of a contract or simply trading so much per ‘point’. Even better is the number of excellent spread bet companies which operate in the same (or better) way as these new brokers except that it is legally classed as betting. This means we don’t have to pay one penny tax on our profits! Sadly, you poor US citizens cannot ‘gamble’ online, meaning spread betting is not possible for you in ‘the land of the free.’ However, a new spread bet company is now accepting US clients - www.pi88.com

There has always been debate whether anyone can actually make a million a year spread betting and not be asked for any money by the Inland Revenue! Take it from me - it is impossible they will ever be asked. The reason for this is that if profits were taxable, then losses would be tax deductible and, since most people lose all their money, the Inland Revenue would be net losers! Now that is indeed an impossible situation, is it not?

I’ll explain the basics of gold trading as simply as possible. Like every other financial ‘instrument, the price of gold goes up and the price of gold goes down. It is quoted in US dollars per ounce and is currently around $950. It typically varies by $10 to $20 each day – a typical day’s variation of 100 to 200 ticks. A ‘tick (or pip)’ is the smallest unit of price movement and there are ten pips to the dollar as far as gold is concerned. Therefore, a pip is 10 cents.

Unlike most other tradables, a point is different from a pip with gold. A point is ten pips, so life gets complicated. Brokers vary on this but mine has a minimum of £10 a point, which is the standard £1 a pip. If you don’t know this, it is a little scary opening a trade at £10 a point if you are used to trading, say, currency, at £1 a point! It’s the same thing. Some new-style brokers may just express the value as $1 a point, meaning pip. Be clear…

So, we now know that gold rises and/or falls by many dollars a day, or several hundred pips. Therefore, as a general idea, 10 pips is nothing, 50 pips is a handsome amount and anything over 100 is very good, for a day’s trading. After all, if we are trading $10 a pip, 100 of them is $1,000 – not a bad day’s work and by no means unusual for those who trade at this level. I’ve traded at twice this and my record is a loss of $20,000 of my own money in an afternoon. Nothing to boast of! I would have actually made half of it back in an hour but my account was cleared out and I only had enough left to trade for $20 a pip to recover $1,000 (instead of $10,000) on the bounce back. Ah, foolish days.

Enough idle reminiscing. The speed at which the price moves varies tremendously according to conditions. Today, for example, the price moved less than 10 pips in 90 minutes just after I opened a trade. Later, it moved well over 100 pips in under half an hour (yes, in the direction I wanted). I closed that trade for 150 pips profit! It often moves 20 pips in a few seconds. Get used to the fact that the market can and does everything and anything. Most of the time, it moves in expected ways but things can get crazy…

The concept of trading gold goes like this. If we think that the price of gold is going to rise, we buy it (obvious). If and when it has risen, we then sell it for more and we’ve made a profit. Now, with trading, there is no need to buy the actual gold. We just make a contract with the broker to buy so much ($ per pip) and when we sell it, he gives us the profit (or deducts the loss from our account if we got it wrong).

Suppose we had to actually buy the gold. OK, we buy 100 ounces for $95,000. Four hours later, the price has risen to $952 an ounce and we sell it for $95,200 – a profit of $200 or exactly the same as trading for $10 a pip because the $2 rise is 2 points or 20 pips. Now, which is better? Paying $95,000 for a wheelbarrow full of gold and trying to sell it to someone four hours later, or trading it instantly for $10 a pip?

Right, anyone can understand that. Now we move outside the box because, in trading, we can sell it before we buy it! We want to do this if we think that the price is going to fall and we wish to profit from the downward price movement. In essence, we sell the gold to our broker and contract to buy it back later. If the price does indeed fall, we’ve sold it for, say, $952 and bought it back for $950 – thus pocketing $2 on every ounce. Like the example above, we make the same $200 on the deal.

So, unlike those ordinary mortals who buy things, shares and bonds, we can profit no matter whether the price rises or falls. Just so long as we get the direction right, we’ll soon be millionaires…

Because we are very smart traders operating with high tech trading software, all this can not only be done almost instantly (the price we click should be the price we get) but also we can place automatic orders to close the trade at pre-determined levels either to pocket our profit (a limit order) or to cut our losses (a stop or stop loss order). Briefly, these are known as stops and limits.

For example, we buy at $950 and place a limit at $952 and a stop at $948, so now, if the price touches either of those values, the trade will automatically be closed and we will win $2 or 20 pips or lose $2 or 20 pips. If we sell at 950 we would place our limit at 948 and our stop at 952. Notice that I’ve stopped wasting ink with dollar signs. Traders don’t use them – inefficient and irrelevant.

That is buying and selling the actual price of gold. In trading, we have ‘leverage’ and we effectively trade so much per pip. For example, the minimum is usually $1 a pip, so in the example above, we’d win $20 or lose $20. At $100 a pip the figures would be $2,000 either way – that’s leverage!

The last complication to grasp is the ‘spread’ or difference between the buy and sell price. It varies from broker to broker but should be between 5 pips ($0.50) and 10 pips ($1). So, our price becomes 950.0/950.5 – in fact, some modern brokers quote to half a pip so it might be 950.05/950.55, just to make life even more difficult. Basically, forget the second decimal place altogether; as if it weren’t hard enough what with pips, points, spreads, selling and buying!

Basically, what the spread means is we’ve lost that before we even start – it goes straight into the broker’s pocket and we have to make those 5 pips back before we begin to profit. Remember, the spread will be added on to our buy price and taken off our sell price, making it harder for us to profit in either direction. You need to play around with a demo account to understand what on earth is going on – believe me. When ever I try a new trading platform, I’m flummoxed, so beginners don’t stand a chance!

Regarding candles by the way, red is a downward movement (price reducing) and green is upwards (price increasing). The wicks and tails show the extreme prices and the start and end of the candle body show the opening and closing prices. So, top to bottom on a red candle would be the high, the open, the close and the low of that hour (on an hour chart). Top to bottom on a green candle would be the high, the close, the open and the low. Differing shapes indicate various likely further moves…

If you understand the above, then you know all you need to know!

To open demo account click here GOLD DEMO ACCOUNT

The Basics of Trading Oil

Trading oil is exactly the same as trading Forex, stock indices, or anything else. Trading, as opposed to buying shares, allows two big advantages. The first is that we can profit from falling prices just the same as rising prices, by selling rather than buying. The second is 'leverage' which allows us to effectively buy huge quantities with just a small deposit. This means we can pocket a decent profit from a small move up or down in price. Of course, this is potentially risky but we always put in an automatic 'stop loss' to close the trade should the price move against us by a set amount. Likewise, we put in an automatic 'limit' to close the trade for a set profit.

Many Forex brokers also allow you to trade oil, so setting up an account is no problem at all. Forex is mostly traded on the MetaTrader 4 platform and this often includes oil without people realising. In fact, most MetaTraders have all sorts of additional instruments, often shares and sometimes even including the DOW. To reveal these, you need to right click in the Market Watch window (where the currency pairs are displayed) and click on 'Show All'.

We obtain our signals from a free, everlasting demo version of MetaTrader but you can actually place the trades anywhere you like, including spread betting. The amount of capital you require varies from broker to broker but most will trade mini contracts and need only a few hundred dollars in your account. The actual risk will be even lower than this because we put in a stop of 90 pips (a $0.90 move on the price of oil). MetaTrader shows the daily 'spot price' for oil and both this spot price and the oil 'futures price' are available depending on which broker you use. The futures price is simply an estimated price for oil for delivery at a set date in the near future. It really makes no difference to our trading.

Here is how a typical trade works. We see that the quoted price is 81.50 - 81.56 so this means that we can buy at 81.56 oil and sell at 81.50 - the difference in prices being the broker's profit. We have a sell signal on our chart, so we sell 0.1 contracts or $1 (or £1) a pip. Now, a 'pip' is the smallest movement, which in this case is 0.01 or a one cent move. At the same time, we put in a stop loss at 82.40 (90 pips up in the 'wrong' direction because we are selling and want the price to go down) and a take profit of 80.00 (150 pips in the hoped-for direction). Then, we simply wait anything from ten minutes to five hours, on average.

However, if the TCCI changes colour, we manually close the trade (although, you can just leave it and wait for the stop or limit to be hit). Usually, we hit the limit and the trade is automatically closed by the software and the $150 deposited in our account. Of course, ideally we trade for a lot more - $10 a pip or greater. For example, trading a whole contract would have resulted in a $1,500 profit, which is quite realistic and not too bad for a few hour's 'work'!
All this and more is fully explained in the 20 page guide that comes with The Oil Trading Business System.

Suitable Brokers:

www.Avafx.com 24hrs, fast & trading from $0.10 per pip!

www.VinsonFinancials.com 24hrs

www.CapitalSpreads.co.uk fixed 6 pip spread, fast (I use them)

www.igindex.co.uk 24hrs excellent but variable large spread

www.futuresbetting.com 24hrs best spread betting but expensive

www.FXPro.com - accepts US traders. 5 pip spread

www.globalfutures.com - accepts US traders

www.tradersplatform.com - accepts US traders

www.cleartrade.com - accepts US traders

www.optionsxpress.com - accepts US traders

www.mbtrading.com - accepts US traders

To open demo account click here OIL DEMO ACCOUNT

MARKET UPDATE

Asia Session
Published: March 2, 2009 2:15 AM

The US Dollar began the new week higher against most majors today as sources spilled the beans on a possible $30 Billion extra in aid to embittered insurer AIG, and the leaders of the European Union rejected a plan to send aid to eastern Europe, thus spreading the fear that the crisis in Europe will become even more consuming. EUR/USD began the day opening lower by about 40 pips at 1.2631 and continued to flow lower until hitting the bottom at 1.2545. The noble leaders of the EU voted down a request of 180 billion Euros to help shore up the financially crippled banks of the old eastern bloc of Europe, and the EUR/USD suffered for the lack of foresight and action.

As the equity markets in Asia were crushed once again, the Dollar and Yen benefited greatly. EUR/JPY saw 123.55 highs early on but quickly fell to a low of 121.91 as the dysfunction continues into the new week. The US Dollar has emerged as the least risky of the major currencies and has gained ground in periods of despair in the equity markets. USD/JPY hit an early low of 96.91 quickly, but as the Dollar strengthened 97.90 was the recorded high. Finally, spot Gold made some nice gains amidst the gloom, rising from an open near 940.00 to top out at just under 954.00 per ounce.

This week's focus will be on interest rate decisions from Australia, England, Canada and the Euro Zone.......

London Session
Published: February 27, 2009 8:17 AM

Risk aversion remained the flavor into the London session as nationalization worries resurfaced with the US government now expected to take a 40% stake in Citi. European bourses are getting pummeled and currently off about -2.5% on average while US futures suggest the S&P will test the critical November intraday low support by 741 today. With month-end upon us, we are also hearing that of lot of the USD bullishness is also driven by portfolio managers rebalancing holdings.

Eurozone data continued to print weak as the unemployment rate rose more than expected in January to a two-year high of 8.2% from an upwardly revised 8.1% the p

rior month. Meanwhile, consumer prices slowed to 1.1% for the same month and remain well below the ECB 2.0% target. EUR/USD shed about -40 pips and was sitting near 1.2660 ahead of the NY open. The 1.2630/20 overnight lows are immediate support and below there should open up potential to 1.2550/00 next.

The yen crosses were lower. USD/JPY slipped -30 pips to 97.50 while EUR/JPY was punished a more aggressive -80 points into the 123.50 area. Profit taking on USD/JPY longs is likely driving the move here as the yen's safe haven status continues to be questioned. USD/CAD also saw a decent 60 pip move higher to well above the 1.26 level and we are hearing this is driven by buying interest into the 1600GMT fix.

The NY session now has some top-tier economic data up that could elicit another leg lower in risk trades. The second cut on US 4Q GDP is expected to show a downward revision to -5.4% from -3.8%, in a reminder that things continue to be worse than previously perceived. Canadian current account also out at 1330GMT could see USD/CAD extend gains if it comes in below the anticipated -5.1B decline for 4Q. Chicago PMI at 1445GMT and the University of Michigan consumer sentiment indicator at 1455GMT round out the session

New York Session

Published: February 26, 2009 5:25 PM

The price action was mixed in NY trading as the flows around tomorrow's month end continue to be volatile. US stocks shed another -1.5% in broad terms as details of Obama's massive budget and $1 trillion in proposed tax hikes led shares lower. The 7-year Treasury bond auction, the first since the early 1990s, was described as sloppy though the bid/cover of 2.1 suggests demand for US paper remains robust. Bonds were lower as demand for higher yields drove prices down. The 10-year rate added 7bps to near 3.00% while the 2-year was pretty flat at 1.08%. Gold lost another -$7 towards 946 as profit taking continued. The precious metal briefly tested 935/930 support and this is expected to be an interesting level as we head into the weekend.

EUR/USD edged about -50 pips in NY trading as failure to take out the 1.28 barrier put downside pressure on the pair. The 200hr SMA by 1.2710 and hourly trendline by 1.2670 now look like the next barriers to further weakness. USD/JPY was bid more than 30 pips despite the weakness in stocks as the yen safe haven myth continues to evaporate. The pair was sitting near the 98.50 pivot at the NY close and 99 looks like the next hurdle in the rally. USD/CAD surprisingly jumped about 95 pips to 1.2530/40 despite the pop in oil prices to near the $45/bbl level. Look for this correlation to resume once the murkiness around month-end subsides next week

Forex News

noreply@blogger.com (MSII) — Mon, 02 Mar 2009 12:17:00 +0000

EUR Fell as Eastern Europe May Not Get Help

EuroThe single European currency declined with a rather strong gap against the U.S. dollar and the Japanese yen today as the leaders of the developed Eurozone countries said that the Eastern European banks will not receive any financial aid.

The bank-devastating crisis is pressing hard on the European countries that haven’t adopted the euro yet, pushing down their currencies. The banks face significant risks as the national currencies fall against the dollar and the euro. Unfortunately for them, the European Union seems to be too slow in taking any unified measures to counter the crisis.

The euro dropped for the second day against the U.S. dollar and the Japanese yen, but rose against the British pound today. The traders favored the «safe» currencies as the stocks dropped worldwide and the appetites for risk declined even deeper. €180 billion ($227 billion) plan to help the Eastern European banks was vetoed by the European Union leaders today.

The analysts believe that only cooperative effort of the EU countries can stop the euro from falling after adding some confidence into the financial system of the regional economies. The local efforts of the separate countries can do little to save the banks from collapsing and the euro from the mass-sale for the dollar and the yen.

EUR/USD fell from 1.2618 to 1.2603 as of 10:18 GMT today after reaching as low as 1.2544 and opening with a significant weekly gap from the Friday’s close level at 1.2667. EUR/JPY declined from 123.18 to 122.50, while EUR/GBP rose from 0.8838 to 0.8870 today.

Euro Recovers From Yesterday Losses

EuroThe euro posted a moderate daily gain against the other major currencies today after some regional banks reported not-so-bad results for the fourth quarter of 2008.

Among the banks that surprised the market analysts were the German Commerzbank AG and the Dutch ING Groep NV. Both of them reported lesser losses for the last quarter than the average estimates showed. The euro also was positively affected by the yesterday’s better than expected reports on ZEW Economic Sentiment and Eurozone trade balance.

The Forex market analysts view the current recovery as a short-term correction gained solely by the conditions of the moment and see no strong reasons for the euro to appreciate significantly against the U.S. dollar or the Japanese yen. As to the British pound — it also has a lot of weak sides and can probably go down against the euro in a real trend unlike the other, less risky, currencies.

EUR/USD rose from 1.2578 to 1.2616 as of 8:47 GMT today after losing as much as 1.7 percent yesterday. EUR/JPY advanced from 116.17 to 116.52, while EUR/GBP grew from 0.8832 to 0.8899 today.

Forex Recources

noreply@blogger.com (MSII) — Sun, 01 Mar 2009 00:00:00 +0000

Forex Resources

This list of Forex resources contains URLs to other useful Forex sites - Forex forums, general Forex information resources, Forex signals providers and my partners. If you find a broken link, or wish to exchange links with us - please, contact me via the link exchange form.

Forex market news

FXstreet — Many useful articles, constantly added expert commentaries and forecasts

DailyFX — Everything happening in Forex world is covered here

ForexCenter.net — The complete Forex portal offering live forex rates, forex charts, forex news, forex trading forecasts, technical analysis, currency converter, forex books & educational material

Forex charts and technical analysis

Incredible Charts — A very good resource to learn everything about charts

Forex Software Reviews — Forex Software Reviews, Informations and News

Inspectd.com — practice your technical analysis skills.

Metatrader Expert Advisors and Metatrader Indicators, MQL4 Coding Service More expert advisor here Forex Tools

BollingerBandsForex — Features charts with Bollinger Bands and a wide array of indicators. Lists of trades of currency pairs based on Bollinger Band trading systems.

Forex brokers

MasterForex — offers a wide variety of trade instruments (Forex, CFD, Futures), an easy and user-friendly trading platform (MT4), terminal for PDAs and Smartphones. 24/5 customer support is always online. Minimum deposit is 1$. We also have Islamic accounts. Spreads begin from 2 pips. Leverage can be up to 1:500. We have the best conditions for partners!

Forex signals and market forecasts

Profit Guide Forex — reliable Precise Trading System with free software that can generate your own signal.

Open Forex — Foreign Exchange Trading, Forex Analysis and Forecasts

Forex Training - Work at Home Business Opportunity — Offers forex training - internet home based business opportunity. Work from home job.

AceTrader - FX signal provider — Provides 24-hrs Intraday and Daily FX trading commentaries & signals. Services started on Reuters since 1989, on Internet since 2000.

Forex forums and community sites

ForexFactory — a popular Forex discussion forum

MoneyTec — Forex related Forum dedicated to technical analysis.

Forex trading information

TradeJuice — The largest selection of FREE day trading articles in the world

Investopedia.com — a large educational Internet resource about investing and trading.

Forex Glossary — Terms and terminology used in Forex Trading. Index of financial and investment terms.

Forex trading — Forex technical and fundamental analysis, forex charts and brokers.

Forex Training with Peter Bain's Forex Currency Day Trading Course — Forex training course and forex services by professional forex traders.

Online Trading Class — Once a Month Trading provides an online trading class which focuses on teaching you important investment principles, on giving you access to market professionals, and on providing a system that will outperform the market.

Online Forex Trading — We talk about currency exchange using online platform, forex softwares and trading systems.

Forex system and MT4 indicator — Free download forex system and MT4 indicators.

Forex directories

Forex Directory — Whole Forex in one place

Forex Web Directory — link to forex related sites and more business information.

Business Web Directory — a large resource of all kind of financial information.

Forex Supersite Directory — a directory of forex and currency trading sites online.

Most Visited Forex Websites — Ranking the most visited forex websites based on alexa and compete statistics. Includes website reviews and historical ranking information.

My link partners

Data Recovery

Currency Rates — Sign up today with us and we will find you the best currency exchange rates for your business or personal needs.

Stock market tips — Investing in Indian stock market made easy with our live nse/bse market tips. Our trading tips covers NSE and BSE .We provide intraday and long term share market calls daily with Equal Emphasising on fundamental and on technicals aspects.Check gainers,losers ,news,penny stock,IPO ,Free tips,trading tricks.

Debt Consolidation — Financial assistence for those suffering from overwhelming debts.

Help Paying Bills — Get your interest rates and overall debt amount reduced with consolidation.

My Forex Income Statement

noreply@blogger.com (MSII) — Fri, 27 Feb 2009 05:58:00 +0000

I started this account last 6 months with 1k USD and now.............

Digital Currency

noreply@blogger.com (MSII) — Wed, 25 Feb 2009 20:10:00 +0000

WebMoney

WebMoney is an electronic currency system operated by WM Transfer Ltd. There are several e-currencies circulating in this system, with the most popular being - WMZ (equals to $1 U.S.), WME (equals 1 euro) and WMR (equals 1 Russian ruble).

WebMoney utilizes several methods for their customers to access system accounts - WebMoney Keeper Classic (the most secure and fully functional access with highly sophisticated software), WebMoney Keep Lite (less secure, but still protected access - via Internet browser). Other methods are available but are rarely used. WebMoney can boast more than 100 million dollars daily turnaround funds and millions customers around the world. Though, WebMoney started as a Russian payment system, it is now became an internationally popular e-currency system with a large number of representatives in all over the world and the developed deposit/withdrawal system.

WebMoney is a highly secure on-line payment system, offering security through the special protected key-files - even if your password is hacked your funds are still secure. While generic WebMoney accounts are anonymous, money withdrawal transaction involve personal identification. These ways make WebMoney far more secured than e-gold or any other on-line payment system.

WebMoney is a good alternative for those Forex traders which search for fast, secure and easy-to-use method to fund their accounts without the troublesome worries with credit cards or bank wires. Many Forex brokers support WebMoney as the deposit/withdrawal option. Here is a short list of recommended Forex brokers supporting WebMoney.

* InstaForex
* FXOpen
* FXCast
* LiteForex
* Marketiva

To open account with WebMoney, please go to http://www.wmtransfer.com.

PayPal

PayPal is an electronic payment, storage and money transfer method that is operated by PayPal Inc., which is owned by eBay Inc. Founded in 2000 PayPal was one of the first and currently is one of the most popular on-line services for money transferring. Although there is account balance associated with each PayPal account, PayPal doesn't employ virtual currency units (unlike e-gold and WebMoney), remaining a pure payment system.

PayPal accounts are anonymous and are based on the customer's e-mail address. But the credit card is required to add the funds into the balance or send payments to other customers.

PayPal charges fees for receiving funds and for withdrawing funds from the account balance to the bank accounts outside U.S. The sender of the funds doesn't pay any fees if transfer occurs only inside the payment system.

PayPal is a convenient electronic payment system to use with the Forex brokers. Because all payments are instant, you can use your credit card without exposing it to anyone except PayPal and there are enough various brokers that accept PayPal for funding purposes. Unfortunately, PayPal doesn't allow residents of certain countries (the majority of the countries) to accept PayPal payments, making it useless to the Forex traders from such countries.

Here is the short list of the Forex brokers that accept PayPal:

* AvaFX
* InstaForex
* Easy-Forex

To open account with PayPal, please go to http://www.paypal.com.

Moneybookers

Moneybookers is a British electronic payment, storage and money transfer system that is operated by Moneybookers Ltd., which is owned by Investcorp Technology Partners. Moneybookers was founded in 2001 and by its functionality is a competitor of other popular payment system PayPal. Like PayPal, Moneybookers doesn't offer any electronic currency, but the account balance can be uploaded and is measured in the common currency units.

Moneybookers requires mandatory account owner verification, which can be done via confirming the credit card, the bank account or the physical address. All three methods can be used together to increase the transfer limits that are active for all customers.

Moneybookers charges fees for sending the funds, which is usually quite convenient for the sellers and providers of the various paid on-line services.

Moneybookers is less popular in the world than PayPal or WebMoney, but is a convenient electronic payment system to use with the Forex brokers. It's a secure payment system that isn't anonymous and complies with the British anti-fraud laws. Unlike PayPal, Moneybookers is fully available to the residents of almost all countries in the world, making it potentially more widespread system.

Here is the short list of the Forex brokers that accept Moneybookers:

* LiteForex
* AvaFX
* InstaForex

To open account with Moneybookers, please go to http://www.moneybookers.com.

Forex Tools

noreply@blogger.com (MSII) — Wed, 25 Feb 2009 20:09:00 +0000

Forex Tools

The presented Forex tools can assist you both in technical analysis and money management which will greatly enhance your trading results. All these online Forex tools are totally free and can be used at no cost:

MT4 Expert Advisors — Download free expert advisors for a Metatrader 4 trading platform. Test and use these EAs to empower your automated Forex trading and also to help the developing of your own Metatrader expert advisor or Forex strategy.

Here you can download MT4 expert advisors which can be used with the MetaTrader Forex trading platform to enhance your currency trading results combining it with the automated trading or expert advising. Only best strategies embedded into expert advisors are presented here. You can test and change them freely before using on your real or demo Forex account. My own testing results are also included for your information. All expert advisors were selected to bring at least 10% yearly profit with maximum drawdown not higher than half of the yearly profit.

If you are having any problems with installing the MetaTrader expert advisors into your MT4 platform, pelase refer to this tutorial:

MetaTrader Expert Advisors User's Tutorial

If you want to achive a better backtesting quality for your expert advisor, please read this tutorial on importing and converting quality historical data to the MetaTrader 4 platform:

MetaTrader History Data Importing and Converting Tutorial for Quality Backtesting

For more info on Top Forex Robot Reviews
CLICK HERE

Forex VPS Hosting

VPS (Virtual Private Server) hosting allows the Forex traders to use the virtual environment on the hosting company's servers to run the MetaTrader expert advisors non-stop 24 hours a day, 7 days a week. The VPS is always on-line, it won't reboot during the trading week, it's not affected by the power outages and you don't need to worry about keeping your PC always on. If you want to run your expert advisors continuously without the unplanned interruptions then Forex VPS hosting for MetaTrader is what you really need. The purpose of the list presented below is to help traders in finding the best VPS hosting for MetaTrader 4 expert advisors. Here's the list of the on-line companies that offer Forex hosting service via VPS:

MT4 Forex Indicators — Free downloads of the MetaTrader indicators for a Metatrader 4 trading platform. You can use these indicators to improve your Forex trading strategy or develop your own MetaTrader 4 expert advisors.

At this page you can freely download MT4 Forex indicators that can be attached to the MetaTrader Forex trading platform to boost your Forex trading performance. You can develop your own Forex trading strategies using these indicators, or you can simply follow them as the trading signals. Feel free to implement any of these indicators into a custom MetaTrader expert advisor. You can change these indicators freely before using on your Forex trading accounts.

If you have any problems with installing or using these indicators, please refer to this tutorial:

MetaTrader Indicators User's Tutorial

You can also discuss these indicators and suggest your updates for them on the special indicators forums.

Aroon Up & Down — this MetaTrader indicator is based on finding the maximums/minimums of the period and doesn't use standard MT4 indicators. It is a separate window indicator with 2 charting lines. I find it useful to determine the trend changes. (Download zipped indicator)

BB MACD — a MACD variation custom MT indicator, based on moving averages and standard deviation indicator. It can be used to determine trend starts/ends as well as the trend strength (the broader is the gap between two bands, the stronger is the current trend). (Download zipped indicator)

BMA — a moving average indicator version that saves the traditional MT4 moving average functionality but adds two bands to the standard line. These bands are placed (by default) 2% below and 2% above the main line and serve as the strong pull-back levels. (Download zipped indicator)

Beginner — this one shows up trend extremes (max and min) which can be treated as the support and resistance points and help you understand current trend channels. It is a simple indicator that uses some period to find the highest and the lowest points and mark them with the dots. It can be a good base for your own range breakout expert advisor. (Download zipped indicator)

Float — this MetaTrader indicator scans the latest trends and tries to apply the data to the current rate, showing a trend start/end in a separate window. It also shows Fibonacci retracement levels on the main chart window. (Download zipped indicator)

Laguerre — a separate window indicator with one line signaling short and long positions, when it crosses the upper band from above or lower band from below, respectively. (Download zipped indicator)

Murrey Math Line X — another kind of pivot points given in form of lines displayed on the main chart. It uses Murrey Math rules to calculate the lines’ position. Lines are shown for the current period and represent the support and resistance levels. (Download zipped indicator)

Pattern Recognition Master — an indicator for the automatic Japanese candlestick patterns recognition. It marks each candle, which fits any pattern, with the special code that represents the appropriate candlestick pattern. The legend for the patterns and the corresponding symbols is also attached to the chart with this indicator. (Download zipped indicator)

RSIOMA — this indicator is composed of the two RSI's (Relative Strength Index) of the moving averages. The cross of the RSI's mean the change of the trend - when bold one is above it is an uptrend, when thin one is above it is a downtrend. (Download zipped indicator)

Support and Resistance — as the name suggests, this indicators shows the levels of support and resistance directly on the chart. It uses standard MT4 Fractal indicator and does quite well in depicting the good levels for the next stop-loss and target-profit prices. (Download zipped indicator)

Trade Assistant — a multi-timeframe indicator that analyzes the market conditions on timeframes from M5 to D1 using the Stochastic Oscillator, RSI and CCI standard indicators. The output is the set of buy or sell signalls displayed as a table below the chart. It's very easy indicator to trade using both small and large timeframes. (Download zipped indicator)

Traders Dynamic Index — indicates trend direction, market volatility and trend strength in a separate window of the MetaTrader terminal. It is handy in many trading styles — long-term and scalping. Read the commentary in the code to learn using it (very easy). (Download zipped indicator)

TRO MultiPair — a multiple timeframe indicator package for multiple currency pair. It shows as a separate terminal window with 3 indicating dots for each of 4 different currency pairs for each MT4 time period. Dots combinations serve as the entry signals. The more timeframes show the same combination the more accurate signal is. Red, red, magenta is used to enter short; green, green, cyan is used to enter long. You can select currency pairs via the input parameters. The timeframe and the currency pair of the chart, to which you attach this indicator don’t matter.

TzPivots — daily pivot points indicator with an accurate and informative display. Trader has to set two input parameters: LocalTimeZone — time zone of the MT4 trading server (e.g. "-5" if it's New York time) and DestTimeZone — time zone of the session for which you want to calculate pivot points (e.g. "+9" for Tokyo trading session pivots). (Download zipped indicator)

Var Mov Avg — indicator is based on the calculating of moving averages of the varying periods. It detects crosses that produce buy/sell signals as well as current trend indication. This indicator has a sound alert on signals, which can be turned on and off. (Download zipped indicator)

You want to share your own custom MetaTrader indicator for this page? Or do you have any comments/questions regarding any of indicators presented here? If so, please contact me.

Pivot Points Calculator — Four online web based pivot points calculators will help you to generate pivot points for any given time period. Pivot points are used to as the most important market trend points, where trend can meet support or resistance and actually change its course. Floor, Tom Demark's, Woodie's and Camarilla pivot points building rules are available with this free calculator. You don't need to download any software, just fill the form and get instant pivot point, resistance and support levels.

Pivot Points Calculator

The presented pivot points calculator will generate pivot points in four different systems for you in seconds! Just fill the form below with the data for a previous period and press the "Calculate" button:

High price:
Low price:
Close price:
Current Open price:*
* For DeMark's pivot points.

Results:

Floor Pivot Points Woodie's Pivot Points Camarilla Pivot Points DeMark's Pivot Points
4th Resistance =
3rd Resistance =
2nd Resistance =
1st Resistance =
Pivot Point =
1st Support =
2nd Support =
3rd Support =
4th Support =

The floor pivot points, presented in the first column of the calculation results table, are the most basic and popular type of pivots used in Forex trading technical analysis. The pivot point is interpreted as the primary support/resistance level - the point at which the main trend will be born. First-third level resistance and support points serve as additional indicators of possible trend reversal or continuation. The rules to calculate floor pivot points are quite simple:

Pivot (P) = (H + L + C) / 3

Resistance (R1) = (2 X P) - L

R2 = P + H - L

R3 = H + 2 X (P - L)

Support (S1) = (2 X P) - H

S2 = P - H + L

S3 = L - 2 X (H - P)

Other popular method of calculating a simple TA indicator which helps trader to forecast future trend is Tom DeMark's pivot points. Which are not pivot points exactly, but predicted low and high of the period. To calculate DeMark's pivot points follow these rules:

If Close < Opencurrent Then X = H + 2 X L + C;

If Close > Opencurrent Then X = 2 X H + L + C;

If Close = Opencurrent Then X = H + L + 2 X C;

New High = X / 2 - L; New Low = X / 2 - H

Woodie's pivot points are similar to floor pivot points, but are calculated in a somewhat different way, giving more weight to the Close price of the previous period. Use the following rules to calculate Woodie's pivot points:

Pivot (P) = (H + L + 2 X C) / 4

Resistance (R1) = (2 X P) - L

R2 = P + H - L

Support (S1) = (2 X P) - H

S2 = P - H + L

Camarilla pivot points is a set of eight very probable levels which resemble support and resistance values for a current trend. The origin and the precise way to calculate these pivot points are unclear. The most important is that these pivot points work for all traders and help in setting the right stop-loss and take-profit orders. I use the following rules to calculate Camarilla pivot points:

R4 = (H - L) X 1.1 / 2 + C

R3 = (H - L) X 1.1 / 4 + C

R2 = (H - L) X 1.1 / 6 + C

R1 = (H - L) X 1.1 / 12 + C

S1 = C - (H - L) X 1.1 / 12

S2 = C - (H - L) X 1.1 / 6

S3 = C - (H - L) X 1.1 / 4

S4 = C - (H - L) X 1.1 / 2

You can find a history of the Camarilla pivot points method and some interesting examples of its usage in a short e-book entitled Camarilla Levels.

Fibonacci Calculator

The presented Fibonacci calculator will help you to generate four basic Fibonacci retracement values - 23.8%, 38.2%, 50% and 61.8%. All you need to do is to fill the current trend's highest and lowest values into the form below and press the "Calculate" button:

High price:
Low price:

Direct Reverse
100,0% Retracement Value:
61,8% Retracement Value:
50,0% Retracement Value:
38,2% Retracement Value:
23,6% Retracement Value:
0,0% Retracement Value:

Fibonacci retracement levels is a powerful Forex tool of a technical analysis. The main idea behind these levels is the support and resistance values for a currency pair trend at which the most important breaks or bounces can appear. It is recommended to set your stop-loss, take-profit as well as stop and limit orders at these levels or around their values. This Fibonacci calculator will organize your currency trading experience and will allow you to be in the market full-time.

Pip Value Calculator

Use this pip value calculator if you want to know a price of a single pip for any Forex traded currency. Use this free Forex tool to calculate and plan your orders when dealing with many or exotic currency pairs. All you need to do is to fill the form below and press the "Calculate" button:
Account Currency:
Currency pair:
Position size, units:
Ask price (optional):

Results:
Price of pip:

Although knowing the actual value of a pip in the U.S. dollars is trivial for such currency pairs as EUR/USD, GBP/USD, it is quite hard to tell the pip value for these currency pairs if your account is denominated in other currencies, or for any other pairs, which have a base currency other than your account is. These currency pairs also require the knowledge of the bid/ask price to convert the pip value to the account currency.

Position Size Calculator

Position size calculator — free Forex tool that lets you to calculate the size of the position in units and lots to accurately manage your risks. It works with all major currency pairs and crosses. It requires the minimum input values, but allows you to tune it finely to your specific needs. All you need to do is to fill the form below and press the "Calculate" button:
Account Currency:
Account Size:
Account Leverage: 1:
Risk Ratio, %:
Money, USD:

Stop-Loss, pips:
Currency pair:
Ask price (optional):

Results:
Money, USD:
Risk Ratio, %:

Units:
Lots:

Calculating the amount you can risk is very important if you carefully follow money management strategy. I advice using it every time you manually open a new Forex position. It will take a minute of your time, but it will also save you from losing money you don’t want to lose. Position size calculation is also a first step to the organized Forex trading, which in its turn is definite property of the professional Forex trader.

Importance of the thorough position size calculation is stressed out in many influent Forex books. Sizing a position should be done in line with setting the right stop-loss and take-profit levels. And it’s hard to lose all the account’s money if you manage risk and position size every time you enter the Forex market.

Risk and Reward Forex Calculator

The risk and reward calculator will help you to calculate the position's best targets and their respective reward-to-risk ratios based on the Fibonacci retracements from the local peak and bottom. It's a powerful tool to determine the potential risks before entering any positions.

The price needs to be inside the wave for you to use this calculator properly. Here are the two variants of the wave you can work with — bullish and bearish:
ABC Waves

The current price is C; A is the beginning of the wave (bottom for bullish and peak for bearish); B is the local maximum (for bullish wave) or minimum (for bearish wave).

Fibonacci retracements (0.382 and 0.618) are calculated to form the entry, target and stop-loss levels. It's better to enter positions only if the current price (C) is close to 0.382 Fibonacci level.
Price A:
Price B:
Price C:

Results:
0.382 Retracement:
0.618 Retracement:

1st Target:
2nd Target:
3rd Target:

Risk Reward Ratio
1st Target:
2nd Target:
3rd Target:

It's not recommended to enter a trade if your reward-to-risk ratio is less than 2.

Forex Brokers

noreply@blogger.com (MSII) — Wed, 25 Feb 2009 20:07:00 +0000

Forex Brokers

MetaTrader 4 Forex Brokers — a list of Forex brokerage firms that support MetaTrader 4 Forex trading software as their trading platform.

PayPal Forex Brokers — a list of Forex brokers accepting PayPal on-line payment system as a way to deposit/withdraw money to/from customers' accounts.

WebMoney Forex Brokers — a list of Forex brokers that accept WebMoney e-currency system as the fast deposit/witdhrawal method, offering high security combined with the fast transfers.

Muslim Friendly Forex Brokers — a list of Forex brokers that try to be friendly to Muslim Forex traders offering "no-interest" margin accounts.

Forex Brokers with Web Based Platform — a list of Forex brokers that fully support Forex trading without installing any trading software.

Moneybookers Forex Brokers — a list of Forex brokers that accept Moneybookers electronic payment system as for trading funds transfers.

Forex Brokers with CFD Trading — a list of Forex broker companies that allow their traders to trade not only Forex, but also CFDs (Contracts for Difference).

Forex Brokers with Advanced Trading Platform — a list of Forex brokers with unique and powerful Forex trading software.

Institutional Forex Brokers — a list of on-line Forex brokers that are backed by strong and respected off-line financial companies.

ECN Forex Brokers — a list of on-line Forex brokers that act as ECNs (Electronic Communication Network) offering Forex traders highly competitive spreads.

e-gold Forex Brokers — a list of Forex brokers that accept e-gold payment system as the method of depositing/withdrawing funds to/from the trading accounts.

A full list of retail Forex broker companies that offer on-line Forex trading services:

For a complete brokers reviews please Click here