Month: June 2010

Hello peeps! I haven’t much about the EURJPY as of late so here it is now. On its daily canvas, you can see that it has failed to move past the resistance around 113.40 for the last couple of weeks. Interestingly, this mark happens to fall in line almost perfectly with the 38.2% Fibonacci retracement level that I drew. Presently, the pair is trading around 110.00. In my view, it is on track to meet its 2010 low again. A presence of a bearish divergence, where the price registers lower highs and the stochsastics go higher and higher, also suggest a likely down-move. Judging by the height of its present range, it could fall by another 400 pips if it manages to break the 108.00 support. On the positive note, a break above the 38.2% Fib could send it a bit higher towards to 50% level.

The general prices of equities and currencies generally have been stuck within a range this week due to the mixed results from the economic data that came out of the US. US home sales were and durable goods were actually unexpectedly weaker than anticipated which added some concerns that the present global recovery is not that strong as initially thought. In any case, no other major economic reports are on deck today as the US leaders already managed to agree on their plan to overhaul the country’s financial system. The US’s final GDP for the 1Q is set to be released to no changes on the previous tally are expected. If, however, the account surprises us on the downside, the safer currencies like the yen and the USD would likely get some favor from the traders. If not, most major pairs would more likely just trade in a range until they sway in either direction in the coming week.

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USDCAD has reached the falling trend line from 1.0852 to 1.0678. A clear break above the trend line resistance will indicate that the fall from 1.0852 has completed at 1.0138 already, then further rally could be seen to 1.0600-1.0700 area. However, as long as the trend line resistance holds, the bounce from 1.0138 is treated as consolidation of downtrend, one more fall towards 1.0100 is still possible.

For long term analysis, USDCAD formed a cycle top at 1.0852 level on weekly chart. Rang trading between 0.9930 and 1.0852 would more likely be seen in next several weeks.

Weekly Forex Analysis

By Adam Hewison – In the market there are two types of market divergences that can occur:
a bullish divergence and a bearish divergence. Both of these divergences are important and you need to know how they work and how you can benefit from this knowledge.

In this short educational trading video, I will show you the tools I use to spot market divergences. We will be using the Relative Strength Indicator (RSI) and the Moving Average Convergence Divergence indicator (MACD) which was developed by a friend and mine, Gerald Appel.

As always our videos are free to watch and there are no registration requirements. If you would like to comment on this or any of our other videos, please feel free to do so on our Trader’s Blog.

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

Prechter on CNBC: Market Pro: Long Bear Market Looming

Robert Prechter, president of Elliott Wave International, tells host Maria Bartiromo why he sees dark days ahead on CNBC’s Closing Bell.

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China’s Historic De-Pegging Is Much Ado About Nothing

By Justice Litle, Editorial Director, Taipan Publishing Group

China’s de-pegging announcement got the currency bulls all hot and bothered this week. The excitement was most definitely premature.

This past weekend, an announcement of great importance came forth from China. To kick off a “new era,” we were told, the Chinese yuan would be de-pegged from the U.S. dollar.

Excitable types on the long side of the market thought this a very big deal. Stocks gapped open higher to start the week, with emerging market equities faring particularly well. But it wasn’t long before currency markets sagged as reality came to light: The West had been juked once again.

To be “juked” – or, more fully, “juked out of one’s shoes” – is an American football term. Roughly, it means to be faked out, played for a sucker, or otherwise made a fool of, by a sufficiently fleet-footed opponent.

The art of the juke requires natural dexterity and the ability to game a defender’s intentions. The would-be juker will typically “feint” or “dance” in one direction, push hard off a planted foot, and then quickly pivot the other way. If done correctly, the defender may even fall down in a heap upon lunging into empty space.

That is more or less what happened to the China currency bulls this week. All kinds of good things were supposed to happen with the revaluation of China’s currency. And those good things may indeed happen – some far off day well down the road. Trouble being, we have zero idea when.

View Larger Chart

The implied promise of the de-pegging is that China’s currency will be allowed to rise (in comparison to the $USD). Less trumpeted is the fact that the yuan can actually fall now as well.

While the PBOC (People’s Bank of China) may give the yuan a bit more elbow room, they are quite likely to stick to the super-tight range they have maintained for some time now. How tight is super-tight, you ask? Here is one way to look at it: Over the past two years, the WisdomTree Yuan ETF (CYB:NYSE), has traded in roughly a one-dollar range… a max fluctuation of four percent on the $24-and-change buy price.

The timing of the de-pegging announcement was laughably political. Given the upcoming G-20 meeting in Canada, the dragon’s primary goal was to deflect protectionist heat.

“Don’t look at us! We’ve listened to your requests – see? We let the yuan rise in value by a whopping 0.4%! (Never mind that it fell back the very next day…)”

If you listen hard, you can almost hear the snickers from Beijing. As hopers grasp at straws, the mandarins laugh up their sleeves…

(By the way, you should read what my fellow Editor Adam Lass thinks about China. Sign up here for his investment commentary.)

Why China Will Stay Its Hand

There are multiple reasons why the dragon cannot afford a meaningful strengthening of the yuan in the near term, much as the U.S. and Europe might wish it so. Here are a few:

• Hot money inflows. Were the yuan to rise swiftly, a flood of “hot money” inflows could rush in and destabilize China’s home markets, some of which are already quite frothy. The PBOC has been careful to deter currency speculators by quashing hopes of a quick pop.
• Export sensitivity. There is a ways to go yet before domestic consumption takes over as the key driver of China’s economy. For now, the dragon’s ability to export manufactured goods remains a vital growth prop… and that means high sensitivity to export competitiveness, which would be hurt by a suddenly stronger yuan (especially given spending slowdown trends in the West).
• Labor competitiveness. China is already enduring a series of factory strikes and forced wage hikes as workers demand better pay. These higher wages reduce China’s competitiveness as an outsourcing destination, and a strengthening currency could further encourage multinationals to look to China’s neighbors. Given its full-employment mandate, Beijing can ill afford such a trend.
• Real estate risks. China’s real estate market is hot – smoking hot – and that means trouble when the bubble bursts, of the sort that an overly strong currency would only make worse. As the LA Times reports, “Home prices in major cities including Beijing and Shanghai have easily doubled over the last year as families and investors rush to grab a piece of the Chinese dream. A typical 1,000-square-foot, two-bedroom, one-bath apartment in the capital now costs about $274,000. That’s 22 times the average annual income of a Beijing resident…“

Saying Goodbye to Santa Claus

Ever since China led global markets off the 2009 lows last year, responding to the crisis with a half-trillion-dollar stimulus package and a burst of economic vigor, investors have come to regard the dragon as a sort of Santa Claus… a benevolent spreader of hope and cheer, handing out investment gifts to good little boys and girls.

Global economy looking down in the mouth? China will lead us back to the promised land. Commodity investments in need of a boost? China will hoover up excess supply. U.S. debt levels looking scary? China will soak up the excess there too. U.S. consumers looking tapped? Chinese consumers to the rescue. And so it goes.

There is an element of logic to the above expectations, but more than a dollop of wishful thinking too. The reality is that China is no benevolent savior… that the debt-driven problems we face are still real and deep… and, last but not least, that “hope” does not count as a legitimate strategy (and never has).

In sum, the de-pegging of the yuan is indeed good news from a longer-term perspective, as China moves one baby step closer to the “free markets for free men” ideal that greases the wheels of global trade. But in the short run, the news is much ado about nothing.

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About the Author:

Justice Litle is the Editorial Director of Taipan Publishing Group, Editor of Justice Litle’s Macro Trader and Managing Editor to the free investing and trading e-letter Taipan Daily. Justice began his career by pursuing a Ph.D. in literature and philosophy at Oxford University in England, and continued his education at Pulacki University in Olomouc, Czech Republic, and Macquarie University in Sydney, Australia.

By Russell Glaser – The U.S. Gulf of Mexico oil rig disaster continues to make daily headlines and rightfully so. Millions of barrels of oil are estimated to have spilled into the Gulf of Mexico, making this the worst oil spill in U.S. history. Following this disaster will be extensive litigation and stiff regulation from the U.S. government. This may have the influence of raising the price of spot crude oil over the long term.

On April 20th when the Deep Water Horizon oil rig exploded in the Gulf of Mexico and killed 11 of the 126 BP crew members. No one expected the oil rig to leak as much oil as it has and to continue to leak for this long. Even today BP is siphoning off oil and gas from the uncapped well after an undersea robot crashed into a system designed to collect the oil from the leaking well. Underwater TV cameras and constant media coverage have engrained the pictures of oil rushing out into the sea at a frantic pace from the oil well and into the Gulf.

The Obama administration has come under intense pressure because of the handling of the spill. As a response, the administration issued a temporary six month ban on deepwater drilling. However, this ban was later overturned by a U.S. court. The administration is currently appealing.

Fines and penalties may come from the government as well. A number of lawsuits have been filed as a result of the spill and many more will follow which should drag on for years to come.

BP has always accepted its responsibility for the spill and has acted in such a manner by foregoing its Q2 and Q3 shareholder dividends. The company has already put aside $20B into an escrow account in order to meet spill claims. The Independent Claims Fund (ICF) will be independently managed outside of BP and will require BP to pony up $5B in 2010 and $5B every year until 2013. However, the ICF does not limit BP’s liability for the oil spill.

This is the least BP can do as it appears the company chose cost cutting measures over the necessary safety requirements on the oil rig. This may have caused the explosion although no official enquiry has published its findings.

The impact on the price of crude oil is palpable. A drop in production from the moratorium on deep water drilling may reduce future supplies of crude oil. Further government regulation may also limit new exploration and cause an increase in price as integrated oil and gas companies may be forced to take more safety precautions to prevent another disaster such as this from BP.

However, since the explosion at the Deep Water Horizon oil rig on April 20th, the price of spot crude oil is down 14%.

Forex Market Analysis provided by Forex Yard.

© 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.

By Yan Petters – The EUR/JPY fell about 1,800 pips in merely two months since April; however the bearish momentum seems slowing. For the past month, the pair has been trading within a restricted range, and now the price is approaching its lower boarder. Will the EUR/JPY break the range?

• The chart below is the EUR/JPY 1-day chart.
• The technical indicators used are the Bollinger Bands, the Slow Stochastic, the MACD and the Relative Strength Index (RSI).
• The pair has been trading within a restricted range recently, between the 108.00 and the 113.50 levels.
• At the moment, the RSI has failed to enter the ‘Over-Bought’ zone, and is pointing down. This indicates that the bearish move has potential to proceed.
• The MACD seems about to complete a bearish cross. If the cross will be completed, this will further verify that the bearish pressure is getting stronger.
• The next significant support level is located at the lower boarder of the range, at the 108.00 level. If the pair will breach this level, it has potential to drop towards the 106.50 level.
• However, if the pair will fail to cross the support level, it might bounce back up, towards the upper boarder of the range, and might reach as high as the 113.50 level

Forex Market Analysis provided by Forex Yard.

© 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.

Source: ForexYard

The U.S. dollar traded well against riskier currencies like the AUD and loonie in overnight trading, but at the same time, took some losses on currencies like the yen and euro. Investors are trying to digest the most recent Fed statement and how it reflects the current state of the global economic recovery. Traders can expect this trend to continue, as we are expecting little in the way of significant news events today.

Economic News

USD – Greenback Makes Gains as Risk Aversion Resumes

Risk aversion appeared to rule the day on Thursday, and carried over into overnight trading today. The latest Fed statement gave a fairly pessimistic view about the current state of the U.S. economic recovery. This appears to be the case despite the fact that the most recent American unemployment number represented a significant improvement over last week’s figure. It appears that investors have now fully accepted the idea that American record low interest rates are to remain in place for the foreseeable future.

Generally speaking, when investors begin to fear the pace of the global economic recovery, they sell off their riskier assets and buy up safe-havens like the USD. Yesterday was no different, as the greenback was able to make fairly large gains on both the aussie and loonie. AUD/USD dropped some 75 overnight, before making a slight recovery in early morning trading. USD/CAD shot up almost 60 pips before leveling off. Currently the pair stands at approximately the 1.0415 level.

Today a relatively slow news day may lead to low volatility in the market place. Still, traders will want to watch out for the U.S. Final GDP figure, set to be released at 12:30 GMT, and the U.S. Revised UoM Consumer Sentiment Report at 13:55 GMT. Both reports have the potential to inject some life into the marketplace, with a result at or below expectations likely to benefit the greenback.

EUR – EUR Tumbles Vs. Safe Haven Yen

While the EUR/USD pair continues to fluctuate somewhat erratically, the European currency has continued to take losses against the Japanese yen. An increase in risk aversion has largely fueled the euro’s drop against the JPY. Late yesterday, the pair tumbled well over 100 pips, before making a slight correction in overnight trading. Currently the pair is trading around the 110.40 level. At the same time, the euro was able to make substantial gains against the British pound, shooting up some 75 pips yesterday.

Today, traders can expect the euro to have a relatively mild day, largely due to the lack of substantial European economic indicators. Furthermore, with investors likely to continue selling off their riskier assets, the euro may take some small losses in afternoon trading.

JPY – Safe Haven Yen Hits 1-Month High Against USD

USD/JPY tumbled yesterday to a 1-month low following the pessimistic American economic outlook painted by the U.S Federal Reserve yesterday. The pair was at one point trading as low as 89.25, dropping over 100 pips in 24 hours. The greenback was able to stage a mild recovery, moving up to its current level of around 89.55. The yen was also able to make some significant gains against the British pound yesterday, as GBP/JPY tumbled some 130 pips before correcting itself.

Today, the yen may very well continue with yesterday’s trend. Last night’s Tokyo Core CPI Report indicated that consumer prices in Japan fell at a slower rate then predicted, a positive sign for the Japanese economy. Furthermore, with U.S. dollar and euro both forecasted for slow close to the week, it is likely the Yen will once again come out on top.

Crude Oil – Crude Down for the Week on Fears of Continued Economic Crisis

Crude oil continued to trade below the $77.00 level in overnight trading, as renewed fears about the pace of the global economic recovery kept prices down. Continued low prices are setting up crude for its first weekly decline in the last 3-weeks. With investors selling off their riskier assets, traders can expect oil prices to remain around their current levels at least until next week.

At the same time, should the U.S. news set to be released today, turn out to be positive, crude prices could go up as risk taking may return to the marketplace. Traders will want to keep an eye on how currencies like the euro and British pound react to the news later. If they begin to move up, there is a good chance that oil may move up as well.

Technical News

EUR/USD

The 4-hour chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, the daily Chart’s RSI is already floating in the overbought territory indicating that a bearish correction might take place in the nearest future. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.

GBP/USD

The pair has been range-trading for a while now, with no specific direction. The Daily chart’s Slow Stochastic providing us with mixed signals. The 4 hour charts do not provide a clear direction as well. Waiting for a clearer sign on the hourlies chart might be a good strategy today.

USD/JPY

The price of this pair appears to be floating in the over-sold territory on the daily chart’s RSI indicating an upward correction may be imminent. The upward direction on the hourly chart’s Momentum oscillator also supports this notion. Going long might be a wise choice.

USD/CHF

The cross has experienced much bearishness in the past 3 weeks, and currently stands at the 1.1015 level. There is much evidence in the chart’s oscillators that supports a possible bullish correction today. This is supported by the daily chart’s RSI. Going long with tight stops may turn out to bring big profits today.

The Wild Card

SPI 200 (ASX)

After the recent sharp drop a correction may be taking place today as the RSI seems to be floating in the oversold territory on the hourly and 8 hour charts and a bullish cross is evident on the 4 hour chart’s Slow Stochastic. CFD traders may be advised to go long for the day.

Forex Market Analysis provided by Forex Yard.

© 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.

By eToro – The Euro edged higher as investors have become dollar bearish as opposed to Euro bullish.  The markets will continue to chop around until next week, when many economic releases are available to alter the market.
Click here to read the full daily Review

Forex Market Analysis provided by eToro

Disclaimer: Trading in the Foreign Exchange market might carry potential rewards, but also potential risks. You must be aware of the risks and are willing to accept them in order to trade in the foreign exchange market. Don’t trade with money you can’t afford to lose.

USDCAD has reached the upper border of the falling price channel on 4-hour chart, a clear above the channel resistance will indicate that the downtrend from 1.0852 has completed at 1.0138 already, then the upwards movement could bring price back towards 1.0852 previous high. On the other side, as long as the channel resistance holds, the bounce from 1.0138 is treated as correction of downtrend and another fall towards 1.0138 is still possible.

Daily Forex Forecast