InvestMacro Forex News

Austerity is the magic word these days, and it has an interesting effect on world markets. When a country like Greece talks about austerity, it’s important to understand what this means not only for the country but for currency markets. Since forex investors want to profit from changes in currency prices, this kind of information is invaluable.

What is Austerity?

Austerity is the economic theory that states that government spending can be reduced, and taxes increased, to balance a budget. This kind of measure relies on the idea of quickly raising revenues for a government so that it can meet its most pressing liabilities while cutting unnecessary expenses and government waste. It is typical to see development projects, welfare, and other social programs cut. Increased taxes come from a hike in income taxes, port and airport fees, train and bus fare increases are also common.

By cutting government costs and increasing revenue, a government should be able to shore up its books and calm investors’ fears about bond yields. This, in turn, should help the currency markets determine how to invest.

An Example of Austerity

A few examples of austerity exist to demonstrate the real-world effects of such measures. The most recent example is Greece. The country’s first austerity package was in February of 2010. The government experienced a freeze of all government salaries, a 10 percent cut in bonuses, and overtime cuts. A second austerity package was rolled out in March of the same year. Under threats of bankruptcy, Greece passed the Economy Protection Bill. It was expected to save the country €4.8 billion. The cuts included 30 percent cuts in Christmas, Easter, and leave of absence bonuses, an additional 12 percent cut in bonuses, and a 7 percent cut in salaries of public and private employees.

The Greek government also raised its VAT from 4.5 to 5 percent, 9 to 10 percent, and from 19 to 21 percent. It also increased its tax on petrol to 15 percent and increased its existing tax on imported cars to a maximum of 30 percent. Greece went through another austerity package in May of 2010 and another in June of 2011. In 2012 it underwent more austerity measures.

The Dark Side of Austerity

For the most part, austerity has failed to balance Greece’s budget. The reason for this is simple to understand. While currency markets generally favor lower government spending and stable economies, they also favor lower regulation. Higher taxes and more regulation brings with it greater political instability. This often leads to economic instability even when the government is collecting additional revenues.

Increasing taxes often discourages workers and businesses from making more money than what is necessary to run a business or a household. Even if businesses do continue to produce, the simple fact is that tax money takes away from a business’s ability to expand and grow. Instead of reinvesting money into the company, it pays higher taxes to the government, who then uses it to pay down national debt. However, the effect of increased taxes slows economic growth and, eventually, kills tax revenues as a result.

Currency markets might be temporarily wooed by the promises of a government shoring up its books, but when the reality of political and economic stability becomes clear, markets punish the offending government by betting against its currency.

Conclusion

For all of the promises of austerity, the reality of the currency markets is telling the story of a weakening euro. If European countries cannot dig themselves out of the debt crisis soon, expect the euro to continue to weaken against every other major currency. Spain, Greece, and Italy are all threats to the eurozone and it doesn’t look like the European Central Bank has anything up its sleeve that will magically fix the situation.

Author Bio:

Guest post contributed by Stacy Pruitt, a freelance forex strategy and finance writer. Stacy writes about advanced trading and forex indicators. Click here to learn more about forex trading.

By Chris Vermeulen, GoldAndOilGuy.com

Crude oil prices hit a four-month high this week on the back of rising tensions in the Middle East and North Africa and the unfortunate murder of the U.S. ambassador to Libya. Added impetus on the upside was given to oil by the announcement of more money printing (QE3) by the Federal Reserve which said it would launch an open-ended  commitment to purchase $40 billion of mortgage-backed securities monthly.

The global benchmark for oil, Brent crude oil, jumped to about $117 a barrel. It maintained its roughly $18 premium to U.S.-based WTI crude oil which was trading at $100 a barrel on a couple days ago. Non-futures investors can easily participate in the oil market through the use of exchange traded funds. The ETF which tracks Brent crude oil futures is the United States Brent Oil Fund (NYSE: BNO) and the ETF which tracks WTI crude oil futures is the United States Oil Fund (NYSE: USO).

The real story behind the story in the oil market, however, is the ongoing Arab Spring which is sweeping throughout the Middle East and North Africa, pushing aside some regimes and threatening others. The countries whose governments, such as Saudi Arabia and the other Gulf states, feel threatened by popular uprisings are where investors should put their focus. Saudi Arabia in particular is key because it accounts for more three-quarters of the world’s spare oil production capacity. So it is very important to note that the kingdom is no longer a price ‘dove’ in OPEC as it has been for decades. It has joined Iran, Venezuela and others in being a price ‘hawk’.

The reason behind the change in attitude is simple…Arab Spring.

Like its neighbors in the Gulf region, Saudi Arabia has gone on a public spending spree to appease its restless citizens. It has sharply increased outlays on subsidies for items like food, fuel and housing in an attempt to appease its citizens. In 2011, the kingdom raised its domestic spending by $129 billion – the equivalent of more than half its oil revenues. Much of this increased spending will go toward upgrading the country’s infrastructure.

Take electricity, for example. Saudi Arabia has revealed plans to spend more than $100 billion dollars on power plants and distribution networks by 2020. The kingdom has also set a goal to electrify 500,000 new homes that are being built in an attempt to mollify political unrest among its population of 27 million people. This spending spree led the International Monetary Fund and other analysts to estimate that the kingdom and other Gulf countries need oil to be selling between $80 and $85 a barrel in order for the governments to balance their budgets.

This is up, in Saudi Arabia’s case, from a mere $25 a barrel a few short years ago!

Unfortunately for oil consumers, this trend looks set to continue in years ahead. According to the Institute of International Finance, by 2015 the Saudi government will only be able to balance its budget if oil prices are at $115 a barrel if current spending trends remain in place.

So in effect, with the Arab Spring forcing governments to spend more on their citizens, it has put a floor under the price of oil. OPEC will do everything in its power to keep the price above the budget breakeven points for governments in the Gulf region.

Keep up to speed on the oil and precious metals markets with my free newsletter: www.GoldAndOilGuy.com by Chris Vermeulen

By TraderVox.com

Tradervox.com (Dublin) – The loonie has declined for the second day against the US counterpart as crude oil prices tumbled to three months low and stocks fell as concerns of economic growth dampened the demand for higher yielding assets. The Canadian dollar dropped as Canada’s existing home sales dipped the most in over two years in August and as US manufacturing measure showed contraction. The loonie dropped as European Finance Ministers met to discuss measures to quell the debt crisis in the region. A report from Canada is expected to show that inflation rate is still at 1.3 percent on Sept 21, when it will be released.

Blake Jespersen, who is the Managing Director of Foreign Exchange at the Bank of Montreal in Toronto, said that the loonie fell from the selling pressure on oil during the after session yesterday. He noted that there is always a correlation between the loonie and crude oil, hence when the crude oil falls traders expects the currency to fall also. The Canadian bonds also declined with ten-year benchmark dropping by 0.02 percentage point to settle at 1.95 percent. The crude-oil futures declined by 2.4 percent in New York after they plunged 4.4 percent during the day, dropping more than $3 in less than a minute as October contracts neared expiration.

Canadian home sales dropped by 5.8 percent in August to 35,869 from July’s figure of 38,063 according to a Canadian Real Estate Association report. Annualized home sales were down 8.9 percent from the August last year. The report also showed that the price of existing homes increased by 1.1 percent from July and edged up by 0.3 percent within a year.

The Canadian dollar has declined against its US counterpart by 0.4 percent to exchange at 97.48 cents per dollar. The currency has however gained by 4.8 percent this year, reaching its strongest of 96.33 on September 14.

Disclaimer
Tradervox.com is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at Tradervox.com are those of the individual authors and do not necessarily represent the opinion of Tradervox.com or its management. 

Article provided by TraderVox.com
Tradervox.com is a Forex News Portal that provides real-time news and analysis relating to the Currency Markets.
News and analysis are produced throughout the day by our in-house staff.
Follow us on twitter: www.twitter.com/tradervox

By Central Bank News
    The use of the aeronautical term “stalling” to describe the U.S. economy’s low pace of growth is problematic because economies – unlike aircraft pilots that crash if they make mistakes – are self-correcting and ultimately return to growth, according to a paper from the Bank for International Settlements (BIS).
    Some commentators have compared the U.S. economy to an aircraft, saying it is close to “stall speed” when it will lose altitude, spin downward and crash without pilots having any control. The implication is that the U.S. is close to plunging into a new recession, the feared double-dip.
    But Wai-Yip Alex Ho, manager at the Hong Kong Monetary Authority (HKMA) and James Yetman, senior BIS economist, find several problems with this analogy in their working paper: “Does US GDP stall?”

    One problem is that there are several meanings of stall. One interpretation is that the growth rate of an economy is too low to sustain normal growth and this ends in recession. Another interpretation is that economic growth slows below some threshold and normal growth is no longer sustained.
    In either case, the authors point out that economies typically transition through low growth when  entering and exiting recessions, suggesting that economies may be more like gliding aircraft, highly inertial and it takes time for pilot inputs, in the form of fiscal and monetary policy, to influence the speed of the economy.
     But the real problem is that economies are not like aircraft. If economic growth slows, wages and prices eventually adjust, supporting demand, so recession gives way to growth. Policy can smooth the path of the business cycle or make it more turbulent.
    “But ultimately the economy will grow again, regardless of pilot input. In contrast, if an aircraft stalls, there are no self-correcting mechanisms at work. Failure by the pilots to apply the correct inputs will lead to a crash and loss of both the aircraft and its passengers. Perhaps we need a better analogy, based on a cycle that is ultimately self- equilibrating, like the business cycle,” the authors write.
    www.CentralBankNews.info
    

London Gold Market Report
from Ben Traynor
BullionVault
Tuesday 18 September 2012, 07:30 EDT

SPOT MARKET prices quoted for gold bullion traded just below $1760 an ounce Tuesday morning in London, 1% off the high hit last week after the US Federal Reserve announced its new open-ended asset purchase program.

“Immediate bullish upside momentum will be maintained while the gold price trades above Thursday’s low at $1723.69,” reckons Axel Rudolph, senior technical analyst at Commerzbank.

“Support above this level can be seen…at $1749.51 and below it at the psychological $1700 level.”

Silver bullion traded in a tight range below $34.20 an ounce this morning – 2.1% off Friday’s six-month high.

Stock markets meantime edged lower, while US Treasury bonds gained. Industrial commodities were little changed, following Monday’s sudden drop in oil prices following reports that the US was considering approving a release from the strategic petroleum reserve.

A day earlier, gold bullion prices fell around $15 an ounce during Monday’s US trading, falling again after a short-lived rebound in Tuesday’s Asian session.

“I would simply call it profit taking,” says Dominic Schnider at UBS Wealth Management in Singapore.

“I think it’s within the range of a solid performance that we’ve seen over the last two weeks or even a month…nothing unusual.”

“I think $1730, levels where the market was before the Fed, will serve as a firm support,” adds Yuichi Ikemizu at Standard Bank in Tokyo.

“[Gold could test] last year’s peak above $1900 before the end of the year.”

Holdings of gold bullion to back the world’s biggest gold ETFSPDR Gold Shares meantime held steady at 1301.5 tonnes yesterday, the thirteen-month high hit last Friday.

Over in India – traditionally the world’s biggest buyer of gold bullion – “demand was higher than yesterday,” one Mumbai gold dealer told newswire Reuters Tuesday.

“Jewelers were making purchases for the festival season…still, large-scale buying is not happening. Ahead of festivals jewelers usually ramp up purchases, but this year so far, the season is subdued.”

On the bond markets, the difference between yields on 10-Year US Treasury bonds and inflation-protected TIPS of equivalent maturity – known as the breakeven rate – rose to its highest level since 2006 yesterday, the Financial Times reports.

“Break-even inflation rates do appear to be moving upwards in a structural way, after the potential regime change at the Fed,” says Barclays strategist Michael Pond.

“The Fed is more focused on reducing unemployment and is prepared to tolerate higher inflation.”

Republican presidential candidate Mitt Romney has said that his comments that 47% of Americans “believe that they are victims” – secretly recorded earlier this year and published Monday – were “not elegantly stated”.

Romney stood by the remarks yesterday, adding that they highlighted the difference between his “free people, free enterprise, free market” philosophy and the “government-centered society” outlook of President Obama.

Here in the UK, consumer price inflation fell to 2.5% last month – down from 2.6% a month earlier – according to official figures published Tuesday.

“This means that the Bank of England will have room to implement more quantitative easing,” reckons ING economist James Knightley.

To date, the Bank of England has announced £375 billion of QE since it first launched its asset purchase program in March 2009.

In South Africa, workers at Lonmin’s Marikana platinum mine, who have been on strike for six weeks, have reduced their basic wage demand, although it remains considerably above Lonmin’s offer, Reuters reports.

“The situation in South Africa is clearing,” reckons Moudi Raad at Swiss refiners MKS, adding that strikes at a number of platinum mines have either ended or are expected to do so this week.

Yields on bonds issued by gold mining firm Gold Fields have risen to a two-month high after 15000 began striking at its KDC West site at the start of last week.

Ben Traynor
BullionVault

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben writes and presents BullionVault’s weekly gold market summary on YouTube and can be found on Google+

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

By The Sizemore Letter

Vive la France!

With ECB President Mario Draghi and Fed Chairman Ben Bernanke in a monetary arms race to see who can inject more liquidity into the global financial system, global equity markets should enjoy a spectacular finish to the year.  And with Bernanke determined to keep short-term rates at near 0% through 2015, dividend-paying stocks should continue to be attractive to income investors for years to come.

Draghi’s Big Bazooka and  the German Constitutional Court ruling mean that we won’t be seeing a Eurozone meltdown—at least not yet.  Meanwhile, most European markets are priced far more attractively than their American counterparts, and most pay significantly higher dividend yields.

Most of the attention has been focused on the “problem children” of the European periphery—Spain, Italy, Greece, and Portugal—and on their stern schoolmistress Germany.  But France is the second-largest economy in the Eurozone and home to some of its biggest and most globally-recognized companies.

At first glance, French stocks would appear to offer value.  By Financial Times’ estimates, French stocks trade for 14.3 times earnings and yield 3.7% in dividends.  Not bad, given that American stocks are priced at 16.2 times earnings and yield only 2.1% and that growth prospects on this side of the Pond are tepid at best.

Investors wanting “one-stop shop” access to French stocks can buy shares of the iShares MSCI France ETF (NYSE:$EWQ).  But today, I’m going to recommend five solid dividend-paying French stocks that should allow investors to profit from the reflation of Europe while also collecting a nice dividend check every quarter.

I’ll start with French oil major Total SA (NYSE:$TOT).  Total is one of the largest integrated energy companies in Europe with more than 11 billion barrels of proven reserves. The company also owns interests in 20 refineries scattered across Europe, the United States, China, and the French-speaking regions of Africa and the Caribbean and operates a network of nearly 15,000 gas stations.

Total is a globally-diversified energy firm trading at a very reasonable price of 7 times expected 2013 profits, and it yields a handsome 4.3% in dividends.

I expect energy prices to stay relatively firm given the massive amount of monetary stimulus in play. But even if I am wrong, Total is priced attractively enough to absorb any sustained weakness in energy prices.

Next on the list is French mega pharmaceutical company Sanofi ($SNY). Sanofi has its hands in just about everything, though it is particularly strong in its diabetes and cancer drugs and in treatments for heart disease and kidney disease.  The company also has a presence in the veterinary pharmaceutical market.

Sanofi’s stock more or less tracked its Big Pharma peers through early May of this year before selling off sharply along with most European shares.  The stock has rallied hard, however, and is now nearly 8 points ahead of the broader iShares Health Care ETF (NYSE:$IYH) (see chart).

Sanofi trades for 11 times expected 2013 earnings and yields 3.9%

Next is French luxury powerhouse LVMH Moet Hennessey Louis Vuitton (Pink: LVMUY).

LVMH has been making headlines of late due to news leaking out that the company’s CEO Bernard Arnault—the wealthiest man in France—was seeking Belgian citizenship, presumably as a part of a broad strategy to lower his astronomical tax bill.  (Arnault insists that he will remain a French resident for tax purposes; we shall see.)

Whether Arnault’s move is purely motivated by tax or if the wily billionaire has some other business trick up his sleeve remains to be seen.  But in any event, it won’t make much of a difference to LVMH and its sprawling global luxury empire.

I’ve held LVMH in client accounts for months, as I view the company to be a fantastic backdoor way to get access to China’s nouveau riche.  The company is strong enough to survive any prolonged slowdown without too much damage.  (And even if China never fully returns to its old rates of growth, readers should remember that Japan remained the biggest buyer of luxury goods well into its multi-decade, slow-motion depression; a slowdown in China does not necessarily mean lean times for luxury goods firms in the country.)

LVMH yields a modest 2.1% , but its dividend is growing.   In just the past two years, its dividend has risen from €1.65 to €2.60—a jump of nearly 60%.

No list of French dividend stocks would be complete without mentioning France Telecom SA (NYSE:$FTE).

I’ve been a fan of European telecom for a long time now, and I hold shares of Telefónica (NYSE: $TEF) and Vodafone (NYSE:$VOD) in client accounts.  I consider both to be excellent long-term plays on rising incomes in the emerging markets in which they operate.

France Telecom is less globally diversified than these two peers, but the company is hardly provincial.  It is a major competitor in the fast-growing markets of Africa and the Middle East.

European telecom firms have been some of the highest-yielding companies in the world for the past few years, and France Telecom is no exception.  The company trades for just 7 times earnings and yields 11.9%.

With a yield this high, it is legitimate to ask: is the dividend sustainable?  The company has already trimmed back its dividend forecast this year, and dividend cuts often beget more dividend cuts.  But with credit conditions in Europe easing due to Mario Draghi’s “doing whatever it takes,” I believe France Telecom will have a lot more flexibility to sustain its dividend.  But given that its payout ratio is nearly 90%, I wouldn’t expect too much in the way of dividend growth.

Finally, we come to French food and dairy products company Danone (Pink: DANOY).

It’s hard to see how a yogurt company like Danone can be considered part of a “strategic industry” vital to France’s national interests as former president Nicholas Sarkozy seemed to think (Sarkozy blocked its acquisition by PepsiCo (NYSE:$PEP) on these grounds), but Danone is a fine consumer staples company with a strong presence in the fast-growing markets of Africa, Asia, and Latin America.  Danone ranks 1^st or 2^nd in most regions in which it operates for both fresh dairy products and infant nutrition.

Given its perceived safety, Danone is a little more expensive than the other stocks reviewed, trading for 16 times expected 2013 earnings.  Still, the company yields an attractive 2.8% in dividends and gives investors great backdoor access to several key emerging markets.

Disclosures: Sizemore Capital is long LVMUY, TEF, and VOD.

Related posts:

• Is There a Bubble In Dividend Stocks?

By Central Bank News
Here’s today’s Central Bank News link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don’t miss any important news.

Article by AlgosysFx Forex Trading Solutions

In the previous European trading session, the Euro lost against the US dollar after a report showed that Euro Zone exports in July slowed down, giving rise to speculations of an interest rate cut by the European Central Bank before this year ends. The export data showed the risks that the Euro Zone could fall into recession in the third quarter as exports contracted by 0.2 percent year-on-year in the second quarter.

The single currency is expected to decline in today’s European trades before the release of the German ZEW Economic Sentiment report which is expected to show that investor confidence remains in the negative territory.  Recent polls also showed that most of the Germans are not in favor of the Euro, and support from the French population is already weakening. According to a poll published by German newspaper Die Welt, and as reported in Reuters, 65 percent of Germans think that they would be better off if it was not part of the Euro, while 49 percent of the Germans believe that if their country was not part of the European Union, it would be better off. A poll published by French Daily Le Figaro also showed that 65 percent opposed ditching the Euro, while 64 percent, if they had to vote for it, would reject it.

Although the Euro got a boost from the Federal Reserve’s plan of another round of QE, sentiment is likely to weaken, considering the many uncertainties that surround the region. Considering these factors, a short position for the EUR/USD pair is recommended in today’s trading exchanges.

For more news, analysis, technical charts and candlestick analysis, visit AlgosysFx

By TraderVox.com

Tradervox.com (Dublin) – The 17-nation currency has declined against the yen from its four months high as data from Germany is expected to reveal that the debt crisis in the region is hampering the region’s growth. The German confidence data is expected to be at its lowest levels hence pushing the euro down against most major peers. However, the demand for the yen was capped by speculation that Bank of Japan will increase the stimulus to curb the yen from strengthening. Further, fears about Spain and Greece have limited the euro’s attractiveness to investors.

Daisaku Ueno, who is a senior foreign exchange strategist in Tokyo at Mitsubishi UFJ Morgan Stanley Securities Co, noted that the euro zone economy is likely to worsen due to the austerity measures adopted by the European Central Bank. He predicted that the euro will eventually weaken as investors realize the economic woes in the region as the debt crisis is deeper than is currently being fathomed.  The index of investor expectation from the ZEW Center for European Economic Research in Germany indicated a reading of -20 in September. The gauge was at -25.5 in August the worst level in a year.

The euro’s Relative Strength Index (RSI) for 14-day against the US dollar and the yen is still above 70, indicating that the asset price will reverse course in correction move. The euro has increased sharply against its peers since September 6 when the European Central Bank announce unlimited bond buying program. The advance was boosted by the Fed announcement of QE3 last week. In addition, the Bank of Japan’s meeting today has boosted speculation of intervention causing the yen to weaken.

The 17-nation currency declined against yen by 0.3 percent to trade at 102.93 yen at mid day trading today in Tokyo. The pair closed yesterday at 103.86 yen yesterday, which is the strongest since May 9. It was down by 0.1 percent against the dollar, trading at $1.3099.

Disclaimer
Tradervox.com is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at Tradervox.com are those of the individual authors and do not necessarily represent the opinion of Tradervox.com or its management. 

Article provided by TraderVox.com
Tradervox.com is a Forex News Portal that provides real-time news and analysis relating to the Currency Markets.
News and analysis are produced throughout the day by our in-house staff.
Follow us on twitter: www.twitter.com/tradervox

Source: ForexYard

The euro was largely able to retain last week’s gains throughout the day yesterday, as a slow news day resulted in relatively little movement in the marketplace. The USD/JPY saw minor upward movement yesterday, as investors grew fearful that the Bank of Japan may soon act to limit the yen’s recent bullish trend. Today, traders will want to pay attention to euro-zone news, specifically the German ZEW Economic Sentiment at 9:00 GMT. A better than expected figure could help boost optimism in the euro-zone economic recovery and help the common-currency extend its gains.

Economic News

USD – Dollar Remains Bearish

The dollar was able to stage a slight recovery against several of its main currency rivals yesterday, even though analysts were quick to warn that given the current state of the US economy, any gains were likely to be temporary. The USD/CHF gained close to 40 pips during the first part of the day to reach as high as 0.9295, before correcting itself and dropping to the 0.9280 level. The USD/JPY advanced more than 20 pips to trade as high as 78.38 in mid-day trading.

Today, the USD could see some volatility when a German economic sentiment indicator is released at 9:00 GMT. Any better than expected news could lead to risk taking among investors, which may result in the safe-haven dollar extending its bearish trend. Later in the week, traders will want to make sure to pay attention to US home sales and manufacturing data. Any better than expected news could help the dollar following last week’s extreme downward movement.

EUR – EUR Starts Week with Slight Losses

The euro traded relatively steady throughout yesterday’s trading session, as investor hopes that the euro-zone may finally be able to overcome its debt-crisis continued to boost the currency. While the EUR/USD took moderate losses when markets opened for the week, the pair was able to stabilize around the 1.3100 level for most of the day. Against the British pound, the euro fell around 40 pips during early morning trading, but was able to remain well above the psychologically significant 0.8000 level.

Today, euro traders will want to pay close attention to the German ZEW Economic Sentiment figure. As the strongest economy in the euro-zone, economic data out of Germany tends to have a larger than usual impact on the marketplace. If the news comes in above the forecasted -19.4, the euro could reverse yesterday’s losses. That being said, worse than expected news could result in a loss of confidence in the euro-zone economic recovery, which may lead to bearish movement for the euro.

Gold – Gold Trades Steadily Near 6-Month High

While the price of gold took moderate losses when markets opened for the week, the precious metal spent most of the day within reach of its highest level in more than six-months. Prices dropped close to $8 an ounce during the first part of the day to reach the $1767 level. A slight upward correction brought the gold to $1770.

Today, gold traders will want to pay attention to news out of the euro-zone. Any better than expected economic data could generate risk taking among investors, which may help boost gold prices going into the rest of the week. At the same time, traders will want to remember that if the news comes in below expectations, safe-haven currencies could receive a boost which may lead to gold turning bearish.

Crude Oil – Crude Oil Takes Moderate Losses in Slow Trading Day

After hitting a four-month high last week, crude oil took slight losses during European trading yesterday as a lack of significant news led to a slow trading day. The commodity fell $0.70 during the first part of the day to reach as low as $98.86 a barrel. An upward correction followed and crude was able to spend most of the rest of the day above the $99 level.

Today, crude could see some upward movement if a German economic sentiment figure comes in above expectations and generates risk taking among investors. Later in the week, oil traders will want to pay attention to several important US indicators. Any better than forecasted news out of the US could lead to speculations that American demand for oil may go up, which would help oil extend its bullish trend.

Technical News

EUR/USD

The Williams Percent Range on the weekly chart has crossed into overbought territory, signaling that a downward correction could occur in the coming days. Furthermore, the Slow Stochastic on the same chart appears close to forming a bearish cross. Going short may be the best choice for this pair.

GBP/USD

A bearish cross on the weekly chart’s Slow Stochastic indicates that this pair could see downward movement in the near future. In addition, the Relative Strength Index on the daily chart has crossed into the overbought zone. Going short may be the best choice for this pair.

USD/JPY

While a bullish cross has formed on the daily chart’s MACD/OsMA, most other long term technical indicators place this pair in neutral territory. Traders may want to take a wait and see approach, as a clearer picture is likely to present itself in the near future.

USD/CHF

The weekly chart’s Williams Percent Range is in oversold territory, indicating that this pair could see upward movement in the coming days. Furthermore, the daily chart’s Slow Stochastic has formed a bullish cross. Traders may want to open long positions for this pair.

The Wild Card

Platinum

The Williams Percent Range on the daily chart has crossed into the overbought zone, indicating that a downward correction could occur in the near future. In addition, the Slow Stochastic on the same chart has formed a bearish cross. This gives forex traders a great opportunity to open short positions ahead of a possible downward correction.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.