Keep Ahead of the Herd in 2011

Learn to Survive and Thrive with Knowledge of Socionomics and the Elliott Wave Principle

By Elliott Wave International

Have you ever noticed that much of the time, the forecasts for what’s going to happen next are quite often just more of what happened last? There’s no real insight, just “expect more of the same.”

That’s not how we view the world here at Elliott Wave International, where instead we study patterns of positive and negative mood to predict changes in the stock market, current events and other trends.

Pop culture trends are more than just “interesting” — analysis of social mood trends is part and parcel of Elliott Wave International’s technical approach, helping us anticipate changes that most people never see coming.

Prechter’s groundbreaking paper, Pop Culture and the Stock Market,” first published in 1985, lays out the foundation for his contrarian analysis:

1) Popular art, fashion and mores are a reflection of the dominant public mood.

2) Because the stock market changes direction in step with these expressions of mood, it is probably another coincident register of the dominant public mood and changes in it
3) Because a substantial change in mood in a positive or negative direction foreshadows the character of what are generally considered to be historically important events, mood changes must be considered as possibly, if not probably, being the basic cause of ensuing events.

Both a study of the stock market and a study of trends in popular attitudes support the conclusion that the movement of aggregate stock prices is a direct recording of mood and mood change within the investment community, and by extension, within the society at large.

It is clear that extremes in popular cultural trends coincide with extremes in stock prices, since they peak and trough coincidentally in their reflection of the popular mood.

The stock market is the best place to study mood change because it is the only field of mass behavior where specific, detailed, and voluminous numerical data exists. It was only with such data that R.N. Elliott was able to discover the Wave Principle, which reveals that mass mood changes are natural, rhythmic and precise.

The stock market is literally a drawing of how the scales of mass mood are tipping. A decline indicates an increasing ‘negative’ mood on balance, and an advance indicates an increasing ‘positive’ mood on balance.

The positive and negative events and trends of any given year paint a picture of society’s mood as a whole. Haven’t we seen enough conventional forecasting fail miserably (remember the 2007-2009 debacle?)  to consider an alternative method?

This new year, resolve to look at the world in a different light, and learn to anticipate changes that will keep you ahead of the herd with an understanding of socionomics and the Elliott Wave Principle.

As we enter 2011, we are happy to offer Prechter’s “Popular Culture and the Stock Market” essay for FREE with your Club EWI sign-up. There is no obligation.When you join Club EWI to access the “Pop Culture” essay, you can also access dozens of other free resources to help you understand how the Elliott Wave Principle and socionomic insight can help your investment strategies.

This article was syndicated by Elliott Wave International and was originally published under the headline Keep Ahead of the Herd in 2011. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

US Dollar Declines on Thursday despite Better US Economic Data

The US dollar declined versus its major currency counter backs on Thursday despite better economic data. As per latest data the US jobs claims declined by 34,000 to 388,000 in last week which also happens to be the lowest since July 2008. Moreover US home sales have been increased by 3.5 percent in November according to data of National Association of Realtors.

Senior Market Analyst Andrew Wilkinson from Interactive Brokers commented, “The dollar continued to weaken … as it typically does in more favorable economic times.”

Despite strong US economic indicators the dollar index DXY which measures the greenback performance versus its major rivals declined to 79.515 on Thursday’s North American trading session as compared to 79.788 on Late Wednesday.

Senior currency strategist David Watt from RBC Capital Markets on falling of US dollar commented, “I think people are grasping at straws trying to explain what’s going on, the overall market reaction … seems odd,”  he further added, “The moves you’re seeing are ones that had to be done, not ones that people wanted to do.”

The Euro advanced to 1.3290 versus the US dollar on Thursday as compared to $1.3219 on late Wednesday. The US dollar declined against the Swiss Franc and British Pound to 0.9346 and 1.5427 on Thursday respectively. However the greenback surged 0.1 percent versus the Japanese Yen on Thursday’s North American trading session.

Analysts from Brown Brothers Harriman commented, “The Swiss franc traded at record highs against the euro and the greenback in thin year-end trade, as euro-zone debt concerns and softer U.S. yields have boosted demand for the franc.”

About the Author

Daily forex trading news written by Rehan from

USD/JPY – Target Below the All-Time Low

By Russell Glaser

As the downtrend for the USD/JPY resumes, a target for traders is identified below the all-time low of 79.75.

Looking at the monthly chart, a distinct long-term downtrend is in effect with a falling trend line from the July 2007 candlestick. Support for the pair is identified by the support line underneath the price action beginning in December 2008 with multiple contact points during the downtrend. Next month this support line comes in at 79.10.

Theis target is conceivable as momentum appears to be to the downside. The December candlestick looks to set to close near its monthly low and falling weekly stochastics also signal further price moves lower for the USD/JPY.

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.

Potential Reversal for AUD/USD

By Anton Eljwizat

In the last two weeks trading, the AUD/USD experienced much bullishness, as it stands now at 1.0185. However as I demonstrate below, it seems that the pair’s bullish run may have run of steam, and a bearish correction could be underway soon. Forex traders can take advantage of this imminent downward movement by entering short positions at an excellent entry price.

• Below is the daily chart of the AUD/USD currency pair.

• The technical indicators that are used are the William Percent Range, Relative Strength Index (RSI), and Slow Stochastic.

• Point 1: The Relative Strength Index (RSI) indicates that the price of this cross currently floats in the overbought territory, signaling downward pressure.

• Point 2: The Slow Stochastic indicates a bearish cross, signaling that the next move may be in a downward direction.

• Point 3: The Williams Percent Range also supports the downward direction.

AUD/USD Daily Chart

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.

Euro Rallies; Merkel Calls for Strengthened Euro

Source: ForexYard

The euro strengthened yesterday against most of the major currencies after reports showed better-than-expected figures for the U.S. economy. In a speech yesterday, German Chancellor Angela Merkel called to strengthen the euro, stating that the euro is the foundation of German prosperity.

Economic News

USD – U.S. Dollar Weakens As Risk-Appetite Rises

The U.S. dollar saw a bearish trend against most of the major currencies during yesterday’s trading session. The dollar fell about 90 pips against the euro, and the EUR/USD pair rose above the 1.3300 level. The dollar also saw a 100 pip drop against the Swiss franc.

The dollar fell after several positive economic releases from the U.S. boosted risk-appetite in the market and increased demand for higher-yielding assets. The initial jobless claims in the U.S. fell last week to its lowest level since July 2008. The number of individuals who filed for unemployment insurance for the first time decreased by 34,000 to 388,000 in the week ended December 24, beating expectations for 416,000 claims.

Another positive release was the U.S. Pending Home Sales report; the number of contracts to purchase previously owned homes rose more than projected in November. The pending home sales increased by 3.5 percent after a revised 10.1% in October, signaling that the housing sector in the U.S. is recovering in a faster pace than expected.

As for today, a light news day is expected due to New Year’s Eve. Traders are advised to follow the U.S. equity market as this is likely to have a large impact on the greenback.

EUR – Euro Rallies On Thursday’s trading; Markel Calls to Strengthen the Euro

The euro rallied against most of its major rivals on Thursday’s trading session. The euro gained about 90 pips vs. the U.S. dollar, and the EUR/USD pair rose above the 1.33 level. The euro also gained about 100 pips against the British pound and about 120 pips against the Japanese yen.

The euro strengthened yesterday after positive economic data from the U.S. signaled that the world’s largest economy is recovering, boosting demand for higher-yielding assets, such as the euro. The positive data was reflected in the lowest level of weekly jobless claims since July 2008 and in a 3.5% rise in the number of homes under contract to be sold in November, as opposed to October.

Moreover, German Chancellor Angela Merkel stated yesterday that Europe stands in the middle of a great test. Merkel claimed that the euro must be strengthened, adding that it is far more than a currency. Merkel said that the euro is the foundation of German prosperity, and that Germany needs Europe and its common currency. Merkel’s speech was partially directed towards analysts and investors, trying to ease speculations regarding the stability of the European shared currency.

Looking ahead to today, the most significant release on the economic calendar seems to be the British Nationwide House Price Index. This report measures the change in the selling price of homes with mortgages back by Nationwide. A positive result has the potential to support the pound, and to further boost the euro.

JPY – Yen Weakens as Risk-Aversion Decreases

The Japanese yen fell against most of its major currency counterparts during yesterday’s trading session. The yen lost about 120 pips vs. the euro, and the EUR/JPY pair reached as high as the 108.90 level. The yen also saw a 50 pip drop against the U.S. dollar.

The yen weakened yesterday after positive economic releases from the U.S. spurred demand for higher-yielding assets. Reports have shown that initial U.S. jobless claims fell last week to the lowest level since July 2008. In addition, the number of contracts to buy previously owned homes rose by 2.5% in November, following a record 10.1% rise in October.

As for today, Japanese banks will be closed in observance of a four-day bank holiday. Traders should also take under consideration that a light news day is expected due to New Year’s Eve.

Crude Oil – Crude Oil Falls to $89 a Barrel

Crude Oil experienced a sharp drop in prices yesterday. Crude began yesterday’s trading session around $91.30 a barrel, and saw a 230 pip fall in a single trading day, reaching as low as $89.02 a barrel.

Crude prices fell after the U.S. Crude Oil Inventories report showed a smaller-than-forecasted drop in inventories. The Energy Department said today that oil supplies have declined by 1.26 million barrels to 339.4 million in the week ended December 24, beating analyst projections for a 2.85 million barrels decrease. The supply data had a dampening effect on oil prices, resulting in crude’s fall to $89 a barrel.

Technical News


This pair began recovering about two days ago, and is currently trading near the 1.3300 level. Currently, both the MACD and the Slow Stochastic on the daily chart are pointing up, suggesting that another bullish session might be expected.


The cable is being traded within a restricted range over the past couple of weeks, and is currently trading within the midst of the range around the 1.5440 level. Nevertheless, a bullish cross of the Slow Stochastic on the 4-hour chart indicates that a bullish move might be impending. Going long might be the right choice today.


The USD/JPY has been falling sharply over the past couple of weeks, and an “M” candlestick formation is about to be completed on the daily chart. The next significant support level appears to be located on the 80.00 level, leaving the bearish trend with plenty of room to proceed. Going short seems to be the right strategy today.


This pair’s bearish trend appears to be continuing. All oscillators on the daily chart are now pointing down, indicating that the bearish move has more steam in it. Going short with tight stops might be the right strategy today.

The Wild Card

Crude Oil

Crude Oil saw a very sharp decline yesterday, falling over 230 pips in a single-trading session, and reaching as low as $89.02 a barrel. The RSI on the daily chart has dropped below the 70-line, suggesting that another bearish move might take place. In addition, the daily chart’s MACD has recently completed a bearish cross, further strengthening the bearish notion. This might be a great opportunity for forex traders to catch the trend at its beginning.

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.

EURJPY Deceleration

By Forex Signs, Inc.

After falling from 109.41 to 107.61 levels, which is approximately 180 pips down, the EURJPY as of the moment is expected to move in consolidation between the resistance level at 108.26 and support level at 107.61. The MACD (12, 26, 9) of the M30 price chart is still showing signs of a consolidation, as the signal line closes its gap with the MACD line. But the anticipation for a probable selling proposal is still visible with the simple MA (65) along with the price at the 1-hour chart is heading towards the bearish channel. Apart from that, the Parabolic SAR line at the same time frame rises above the price, thus stimulating a prospective bearish momentum in the succeeding events. For the moment, a hold position is seen to be applicable for the current movement of the EURJPY. And bearish opportunity with the pair heading towards the downtrend for the upcoming trading session is still foreseeable.

Business Sector in Japan Looking Optimistic, Favors Yen

The Japanese yen may experience another bullish trend today against a basket of major currencies, particularly the U.S. dollar, as the business sector of Japan is doing well towards year-end. The U.S. government will use Japan’s standardized quick charging system, the CHAdeMO Method, in large-scale driving tests of electric vehicles (EVs), it has been learned. This will be the first time a large number of quick chargers using the CHAdeMO Method are used overseas and is seen as an initial step toward the Japan system becoming the world standard. This tie-up between Japan and US is very good for the yen as demand for the latter will strengthen.

Further, the Yamanashi prefectural government plans to seek special fuel-cell district status for the prefecture, in which restrictions on hydrogen fuel for fuel-cell vehicles would be eased, under the central government’s special economic zones to be launched next fiscal year. The prefecture also intends to use central government subsidies to fund small and midsize companies involved in fuel-cell development projects.

However, there is a small chance that the yen may move otherwise if something optimistic happens in favor of the U.S. economy. Anyhow, for the meantime, it is advisable to sell the USDJPY pair.

About the Author

Forex Signs, Inc., Founded in 2006 in Wall Street, New York City, FSI relentlessly strives to be the premier Forex brokerage company in the industry by providing exclusive and unmatched trading and investment related services while constantly developing innovative solutions that cater to the vast requirements of both individual and institutional market participants.

US Unemployment Falls To Lowest Since July 2008

Good morning! Sterling has fallen across the board in the last 24 hours including to 1.1597 against the euro. However these fluctuations are typical in the festive period (there isn’t much liquidity on the markets because most investors are off enjoying themselves) meaning the sterling movement shouldn’t be taken too seriously.

In fact not much has happened on the markets in the last 24 hours (it is New Year’s Eve!) but there has been some strong US and UK data.

The US home sales index increased 3.5% in November to 92.2 beating expectations of a 2.0% increase. This sits below pre-recession figures but bodes well for the US economic recovery.

In addition US unemployment fell 34,000 to 388,000 citizens in November. This is the lowest number since July 2008 and once more indicates the US economy is on course for 2011.

In the UK meanwhile house prices rose for the first time since May 2010 in November gaining 0.4%. Estate agents though consider this aberrant given the financial climate: tax increases expected in 2011 means demand on the housing market should remain low.

Furthermore several retailers are reporting that Christmas sales figures this December have exceeded all records. John Lewis for instance beat its previous festive sales record by 30% while Asda had four million customers on 23rd December. This bodes well for UK consumer demand and might be good for sterling in 2011.

by Peter Lavelle with foreign currency exchange specialist Pure FX.

EURUSD broke above 1.3274 resistance

EURUSD broke above 1.3274 resistance. Now the price action from 1.2969 is more likely a sideways movement. Range trading between 1.2969 and 1.3497 could be seen in next several days. The sideways movement is treated as consolidation of longer term downtrend from 1.4281 (Nov 4 high), as long as 1.3497 key resistance holds, one more fall towards 1.2500 is still possible.


Daily Forex Reports

My Trading Outlook for SP500, Oil & Gold in 2011

By J.W Jones,

The end of 2010 is rapidly approaching and the pundits and commentators continue to make their 2011 market predictions. I for one believe predicting future market moves is a futile endeavor where if you are right one year later you are viewed as a sage; if you are wrong nobody seems to remember or care.

In fact, I try not to read any predictions for fear that it might place a bias in my subconscious. I am a trader and thus have no need for emotions, bias, or opinions when trading. I try to stay away from the media and the pundits as often as possible.

With that being said, the managed money crowd will be finishing up their window dressing and the performance anxiety of 2010 will slowly shift to assessing their portfolio risk and making appropriate adjustments for the coming year. Based on current market sentiment it would make sense that most money managers are bullish as cash levels remain quite low when looking at mutual funds and institutional money managers’ portfolios.

S&P 500

The S&P 500 is extremely overbought in almost every time frame and headline risk remains high. At current price levels I would not be interested in being long the S&P 500, in fact I would likely be taking some money off the table before 2011 rolls in.

I think opportunities are going to present themselves in 2011 for outstanding longer term entries into the equities market, however a disciplined approach will be required. Headline risks such as continued monetary and fiscal issues in the Eurozone, municipal budget concerns and potential defaults, potential for rising interest rates, inflation / deflation, and rising energy prices to name just few. Unfortunately some, if not all of the headline risks listed above will likely come to pass. Having fresh capital ready to deploy and developing a trading plan ahead of time for solid entry points will likely lead to a positive trading outcome in 2011.

I believe there are going to be some outstanding trading setups in 2011 regardless of market conditions or economic factors, but in order to be prepared we need to have trading capital available and a trading plan prepared. The weekly chart below illustrates some key support levels on the S&P 500 e-mini contract.

At some point in the future, the S&P 500 is going to suffer from a correction and I intend to be prepared to take advantage of lower prices in my longer term investment accounts as well as in my short term option trading accounts. While I am generally a contrarian when sentiment and bullishness are this high, deep down I am hopeful that the economic recovery continues. However, I am not blind to believe that the worst is over and it is smooth sailing from here. There is nothing about financial markets that is ever easy, and when the directional bias is this strong I tend to step back and develop contrarian strategies just in case the crowd is wrong.


I try to stay away from opinions and focus on facts when conducting analysis regarding financial markets. However I am going to break my rule briefly to point out that in my humble opinion, the single largest threat to the U.S. domestic economy is not unemployment or housing, but energy. If energy prices continue rising, it causes nearly everything to rise in price in the United States as producers and manufacturers pass down rising fuel costs to the consumer. Essentially we have leveraged the ability to support our substantial population and tremendously high standard of living with the ability to use cheap and plentiful oil.

Some of the reasons that oil prices could rise have fundamental and technical foundations. From a fundamental standpoint, supply appears to be declining and will continue to decline going forward unless some oil fields that are currently unknown are discovered and make available immense supplies of oil. Additionally, the basic principles of supply and demand are present as emerging market countries are needing more and more energy to keep their economies growing and to satisfy the concurrent rising standard of living. Countries like China, India, and Brazil are only going to see their need for energy increase and other countries in the world need to recognize that demand is rising and supply is falling.

While the argument among economists rages on regarding inflation versus deflation, if inflation were to rise suddenly this would also be bullish for energy. Most investors may not have considered that oil prices are over $90/barrel and the economy is relatively sluggish. Where would prices be if the economy were to boom in 2011?

From a technical standpoint, the Great Recession pushed oil down from the all time highs in 2008. Many economists believed that the rise in oil prices is what really caused the market to crater in early 2009. If we view a weekly chart of oil, it would appear that we are continuing to trend higher and that in the longer term this trend will likely persist.

I would be shocked if oil prices do not reach at least $100/barrel in 2011. Some analysts are saying that it could reach $115-$120 by the summer and could probe all time highs as early as 2012. The fundamental and technical analysis is mutually supportive and in the longer term I think rising energy prices is not only a near certainty, but also a major threat to the global recovery.


The recent pullback offered a nice entry around the $133/share on GLD. In full disclosure, I purchased GLD around 133.25 and sold a slew of naked puts on silver and gold which I have closed for solid gains. Argument surrounds gold and silver as economists bicker over whether we are going to see hyperinflation or deflation in 2011. I for one do not know or claim to know. What I do know is that gold appears to be nearing a final wave of buying which could push it to all time highs.

However, I do believe without question that the volatility in the price of gold is likely to increase dramatically. Large price swings are likely in 2011 as headline risks will drastically impact the price of gold and silver and cause volatility to increase. While this is somewhat speculative, the various headline risks in Europe and in the United States will have a significant impact on precious metals prices.

Gold continues to trend higher and fighting the trend makes little sense and could be a great way to lose precious trading capital. I will continue to play the rising trend until it fails which at some point in the future is inevitable. Neither gold, nor any other asset can continue rising forever. A pullback at some point is not only likely, but would be healthy. Obviously gold remains in a bullish uptrend as illustrated by the weekly chart below:

I do believe that gold is a solid hedge against currency risk and higher inflation based on recent price action, but I am not willing to buy into the world is ending philosophy that many gold bugs envision.

I do not believe that the entire financial construct will fail and that a barter system will be created with gold becoming currency. Through a variety of emails from all over the world I have been presented with all kinds of analysis and data that all fiat currencies fail, that gold is a store of value, and that gold will protect investors from currency manipulation and inflation. While all of these things may be true, I am unwilling to abandon hope for peace, prosperity, and a better future.


I am optimistic about the domestic and global economy in the long term. I believe that great opportunities for long term investment will be offered in 2011 and I intend to take advantage of the price action. I am an options trader at heart, but in the end I am an eternal optimist. Being pessimistic is not only depressing, but it offers very little in the form of solutions. Consequently an absolute pessimistic forward looking view serves to only create biases that are not conducive to success in financial markets. Let’s forget about predictions and pundits and focus on what really matters – price action.

If you would like to receive my Free Options Strategy Guide & Trade Ideas join my free newsletter:

J.W Jones

Forex Daily Market Commentary

By GCI Forex Research

Fundamental Outlook at 0800 GMT (EDT + 0400)

The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3315 level and was supported around the $1.3215 level.  Technically, today’s intraday high was just above the 61.8% retracement of the $1.2650 – 1.4280 range.  Traders continue to lift the common currency higher at year-end as commodities prices escalate at the expense of the U.S. dollar.  European Central Bank member Nowotny warned it is possible “that there will be further challenges for individual countries in the euro area” and added a “more efficient Stability and Growth Pact” is a needed reform.  Improving U.S. and global economic data are increasing the demand for higher-yielding assets and decreasing demand for U.S. dollars.  At the same time, safe haven assets like the Swiss franc and Japanese yen remain bid.  This evidences the dynamics of the two-track global economy where emerging market economies are registering elevated rates of growth and industrialized countries where fiscal imbalances are overshadowing economic growth.  The dominant theme in the eurozone remains sovereign credit woes.  Ratings agencies have slashed eurozone credit ratings in recent weeks, adding to the euro’s malaise.  There remains widespread speculation that Portugal and maybe other eurozone countries will be forced to accept financial assistance next year.  Eurozone banks are hoarding cash at year-end to bolster their balance sheets.  The European Central Bank this week attemped to absorb €73.5 billion of liquidity from the eurozone financial system, around the amount it has expended on the purchase of eurozone government bonds.  Eurozone banks, however, offered just over €60 billion and this represents the second failure to remove liquidity and sterilize its bond purchases since the bond-buying program was started in May to support asset prices and keep a lid on market rates.  Data released in the eurozone this week saw German provisional consumer price inflation data for many states come in stronger than November’s levels and German headline CPI was up 1.0% m/m and 1.7% and 1.2% m/m and 1.9% y/y at the harmonized level.  In U.S. news, data released today saw weekly initial jobless claims fall sharply to 388,000 from the prior reading of 422,000 while continuing jobless claims climbed to 4.128 million from the prior reading of 4.071 million.  Also, December Chicago PMI climbed sharply to 68.6 from the prior reading of 62.5 and November pending home sales improved +3.5% m/m and improved to -2.4% y/y.  Other data released in the U.S. this week saw the October CaseShiller home price index decline more than expected at -0.99% m/m and -0.80% y/y.  Also, Dcember consumer confidence tumbled to 52.5 from the prior reading of 54.3 while the December Richmond Fed manufacturing index improved to +25.  Euro bids are cited around the US$ 1.2995 level.

¥/ CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥81.30 level and was capped around the ¥81.65 level. Technically, today’s intraday low was just above the 76.4% retracement of the ¥80.25 – 84.50 range.  The pair has not been this weak since 9 November and its recent ¥3 decline has more dealers speculating Bank of Japan will decide to expand monetary policy further.  Five-year Japanese government bonds appreciated by their largest amount in one year as traders tried to get ahead of possible central bank easing.  The government reported it did not conduct official yen-selling intervention in December for a third consecutive month following its ¥2.12 trillion intervention actions in September.  Data released in Japan overnight saw December manufacturing PMI climb to 48.3 from the prior reading of 47.3.  Current account deposits held by the BoJ have remained above ¥20 trillion for several consecutive days, an indication that banks have a significant amount of capital on hand.  Finance Minister Noda this week verbally intervened against the yen’s strength again, vowing to take “bold action when moves are excessive.”  Noda added the yen’s appreciation has been “one-sided” while Economy Minister Kaieda added “abrupt yen moves must be avoided.”  Japanese policymakers clearly remain preoccupied with preventing the yen’s advances from eroding exporters’ margins too much, especially after positive Japanese economic data were released overnight.    On 22 December, the government released an economic growth forecast that predicts economic growth will fall to +1.5% in the fiscal year beginning 1 April, down from the estimated +3.1% rate of growth in the current fiscal year.  Many data were released in Japan this week. The Nikkei 225 stock index lost 1.12% to close at ¥10,228.92.  U.S. dollar offers are cited around the ¥84.60 level.  The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥108.30 level and was supported around the ¥107.60 level.  The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥125.55 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥87.00 figure. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan today as the greenback closed at CNY 6.6070 in the over-the-counter market, down from CNY 6.6245.  Today’s close was the pair’s weakest showing since 1993 and traders continue to speculate People’s Bank of China will allow the yuan to appreciate at a faster pace in 2011.  Data released in China overnight saw December HSBC manufacturing PMI fall to 54.4 from the prior reading of 55.3.  The December business conditions survey will be released overnight and December manufacturing PMI will be released tomorrow night. People’s Bank of China raised the yield on three-month bills for the first time in seven weeks following a move in China’s benchmark seven-day repurchase rate to 6.27%, its highest level since 2007.  Liquidity conditions remain very tight on account of year-end cash hoarding by financial institutions.   People’s Bank of China official Sheng Songcheng this week reported China should accelerate the “liberalization” of interest rates “by a certain degree” to reduce inflation and said asset prices should become an “important” factor in formulating monetary policy.  PBoC raised its one-year lending and deposit rates by 25bps on Saturday, its second rate hike since mid-October.  The benchmark lending rate increased to 5.81% and the benchmark deposit rate increased to 2.75%.  Many economists believe PBoC will front-load additional rate hikes and other monetary tightening policies in the coming months.  Notably, China has raised banks’ reserve requirements six times in 2010 and reduced loan growth from record levels.  These actions evidence a central bank and government that remain very concerned about elevated rates of inflation.  China is said to be targeting 8% GDP growth and 4% inflation growth in 2011 along with 16% M2 money supply growth.


The British pound depreciated vis-à-vis the U.S. dollar today
as cable tested bids around the US$ 1.5040 level and was capped around the US$ 1.5535 level. Technically, today’s intraday high was right around the 76.4% retracement of the $1.5300 – 1.6300 range.  The pair last week reached its weakest level since September.  Bank of England Monetary Policy Committee Sentance reported official interest rates should “gradually” be raised to signal the U.K. economy is returning to “normal” and contend with inflation that may accelerate to double the BoE’s target in 2011.  Sentance also reported the British economy “has bounced back from recession more strongly than most people were expecting.”  He also warned against a wage price spiral.  In contrast, MPC member Posen continues to call for additional monetary expansion.  Data released in the U.K. this week saw Q3 Bank of England housing equity withdrawal decline to -£6.1 billion.  December Nationwide house prices data will be released tomorrow.  Other data released this week saw the December Hometrack housing survey off 0.4% m/m and off 1.6% y/y.  Bank of England Monetary Policy Committee member Fisher last week warned mortgage interest rates could reach 5%. Cable bids are cited around the US$ 1.5265 level.  The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8610 level and was supported around the £0.8515 level.


The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 0.9370 level and was capped around the CHF 0.9460 level. The pair has now lost about 23 big figures from its 2010 high and fell to an all-time low this week as the franc continues to sharply escalate.  Data released in Switzerland this week saw the December KOF Swiss leading indicator decline to 2.10 from the revised prior reading of 2.13.  Also, the November UBS consumption indicator declines to 1.630 from the revised prior reading of 1.708, still indicating an expansion in consumer spending activity.  Swiss National Bank Chairman Hildebrand has labeled the franc’s record rally a “burden” and options traders are said to more bullish on the franc over the next quarter than any other currency other than the yen.  SNB incurred approximately CHF 22 billion of intervention-related losses in the first nine months of 2010 on account of its inability to halt the franc’s appreciation and there is a broadening perspective the SNB may not be able to reverse the franc’s ongoing gains.  SNB last week reported “Concerns about stability in the euro area have led to renewed financial market tensions.  Should these tension be exacerbated and put a strain on economic developments in the euro area, this would also have a detrimental effect on the Swiss economy.  If a deflation risk emerges, the SNB would take the measures necessary to ensure price stability.” The SNB’s 2012 inflation forecast was reduced to 1% from 1.2% on 16 December, just a few months after SNB Vice Chairman Jordan reported intervention is no longer necessary because the deflation threat was almost gone.   Last week, the euro reached an all-time low vis-à-vis the Swiss franc.  U.S. dollar offers are cited around the CHF 0.9780 level.  The euro depreciated vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.2400 figure while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.4450 level.

Forex Daily Market Commentary provided by GCI Financial Ltd.

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