InvestMacro FX

By Harry Brown

In the foreign exchange market, commonly known as Forex, traders buy and sell foreign currencies with the intention of profiting from the fluctuations in exchange rates. Though traders have a lot to gain from this market, it’s easy for beginners and even experienced traders to lose track of their capital and experience a series of losses that they cannot recover from. It is essential for all Forex traders to have a money management strategy setup before they start making transactions. This involves setting barriers on risk and leverage. It also requires traders to organise and analyse their gains and losses so they are always aware of their financial situation.

To begin, all Forex traders must determine their own risk profile. It is up to you how much money you’re willing to risk on a trade. By knowing your limits, you don’t give yourself any room to make reckless transactions. Beginner traders may want to limit themselves to just 1-2 per cent of their capital per trade. If you risk more than this, a single transaction could potentially put you in a position that’s difficult to recover from.

Another issue involved in money management is leverage. Leverage in the Forex market refers using borrowed capital for trades. Though leverage may allow you to make trades you couldn’t have afforded otherwise, it must be balanced carefully so that you don’t find yourself relying too much on borrowed money. For example, it is often recommended that Forex traders do not leverage more than 1/5 of their capital. Traders that leverage too much suffer amplified losses when a trade does not go in the direction they predicted.

Once you have set barriers for risk and leverage, it is important to implement a system to keep track of your gains and losses over time. Traders can keep a daily log of their transactions and keep all their trading data on a Forex money management spreadsheet. Though the process of recording trades may seem quite basic, it is one of the most important practices a trader takes part in. Traders can also consult financial experts who specialise in the Forex market and provide money management tools for their clients.

Thus, forex traders can manage their money by having a clear understanding of their risk profile, by using leverage carefully and by diligently recording their transactions. Though traders have much to gain from such a liquid market, money management is crucial to their success.

The author of this article is a part of a digital blogging team who work with brands like Saxo Bank. The content contained in this article is for information purposes only and should not be used to make any financial decisions.

Dec. 14 (Bloomberg) — Beat Siegenthaler, a senior foreign-exchange strategist at UBS AG, discusses the outlook for currencies, including the euro and dollar. He talks with Linzie Janis and Owen Thomas on Bloomberg Television’s “Countdown.” (Source: Bloomberg)

Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.

Source: ForexYard

As the latest SNB Monetary Policy Assessment approaches there has been speculation of an impending move by the SNB to raise the floor of the EUR/CHF to 1.25 or perhaps 1.30 from its current 1.20 level. But with the EUR/CHF trading in a tight 300 pip range the SNB may choose to let the market move first before the SNB takes further action.

Economic News

CHF – SNB Interest Rate Decision

As Thursday’s SNB Monetary Policy Assessment approaches there has been speculation of an impending move by the SNB to raise the floor of the EUR/CHF to 1.25 or perhaps 1.30 from its current 1.20 level. This speculation has increased following last week’s Swiss CPI release which showed the Swiss price level declined by -0.2% m/m during October. Over the month of September CPI fell by -0.1%. There are additional signs of cracks in the Swiss economy. The November PMI fell to 44.8 from 46.9. During Q3 exports have fallen by 1.2% q/q and GDP increased a tepid 0.2%. The data hints at further troubles for the export driven economy.

Despite the clouds on the economic horizon the SNB may not adjust the EUR/CHF floor as many market players expect. The most recent CFTC IMM data shows the market has turned bearish on the CHF with speculative shorts climbing to their largest position since June.

The central bank has been very conservative in its approach to managing CHF strength. With the EUR/CHF trading in a tight range of 1.2130-1.2470 over the past two months the SNB may have little to gain by increasing the floor at this time. The SNB may instead choose to be conservative on Thursday and let the market make the next move.

EUR – EUR Begins to Stabilize

Data out of Europe has helped the EUR to stabilize following yesterday’s sharp decline. Bond auctions from both Spain and the EFSF were well subscribed. Both the German ZEW and the European sentiment surveys also showed improvement which helped the improve market sentiment.

That said the threat of additional credit rating cuts for both sovereigns and Spanish banks has not gone unnoticed. Additionally there are reports that Commerzbank AG is in talks with the German government for receiving state aid.

Last week the ECB only purchased government bonds worth EUR 0.6 bn versus EUR 3.7 bn in the previous week. This is the one of the smallest amounts purchased since the bond buying program was established in 2010.

With the ECB showing limited support for the European debt crisis the burden will fall on politicians. Given the most recent EU summit failed to earn support from the financial markets this does not bode well for the EUR in the near term. The EUR/USD has support at 1.3145 with some market participants looking at 1.3050, the 61% Fibonacci retracement of the 2010-2011 rally from 1.1875 to 1.4940. Resistance is back at the 20-day moving average at 1.3380.

GBP

Sterling was softer following inflationary data which showed UK prices declined in November. CPI for the month of November fell to 4.8% y/y from 5.0%, in-line with consensus forecasts. The fall in the price level supports BoE expectations of declining inflation which could turn into a threat of deflation in the UK economy. The BoE forecasts inflation to dip under its inflation target of 2.0% in 2012. Yesterday’s CPI results will likely increase market expectations for additional bond purchases and could weigh on sterling.

The GBP/USD has been consolidating the last 10-days but a close below the December low would open the door to the November low of 1.5420 and the October low of 1.5270. Resistance is found at 1.5740-80 where the 55-day moving average is located.

Crude Oil – OPEC Meets but Should Leave Output Unchanged

Today members of OPEC will be meeting in Vienna, their first meeting since June when participants failed to come to an agreement on supply levels. The main conflict occurred between Saudi and Iranian officials. There will be additional variables in the equation with the present output from Libya unknown and increasing supplies coming back online from Iraq. Tensions in Iran have also been building with threats of a European embargo on Iranian oil purchases. With oil prices continuing to trade near the $100 level expectations are for no change to the current production level of 30 million barrels a day. A no-change decision could help to ease spot crude oil prices in the near-term.

Technical News

EUR/USD

The 20-day moving average is now at 1.3420 and has served as a significant resistance level with the EUR/USD last closing above this line on November 3rd. While weekly stochastics are beginning to look oversold the monthly stochastics still have room to move lower. With the downtrend firmly entrenched the supports from the November low of 1.3260 and the October low of 1.3145 are within striking distance. A move higher may find willing sellers at the December high of 1.3550 and the November 18th high of 1.3610.

GBP/USD

Sterling has been caught in a range trading environment between the levels of 1.5780 and 1.5660 where the 55-day moving average is found. With daily and monthly stochastics moving lower the November and October lows of 1.5420 and 1.5270 look to be within reach. Resistance for the GBP/USD can be found at the November 18th high of 1.5890 followed by the falling trend line from the August high which comes in at 1.5925.

USD/JPY

The doji candlestick from December 8th stands out as the day’s low coincides with both the 55-day and the 100-day moving average. This may be the start of a base being formed for a test of the June 2007 trend line which comes in at 78.50. A break here will expose the post-intervention high of 79.50. To the downside the November 18th low of 76.55 is the last support prior to the pair’s all-time low at 75.56.

USD/CHF

The pair continues to struggle to overcome the 0.9330 resistance level despite multiple attempts to move higher. A concerted move higher may find resistance at the 20-month moving average of 0.9380 followed by this year’s high of 0.9780. The downside may be capped at the support of 0.9065 which coincides with the pair’s 55-day moving average. Additional support is located at the November low of 0.8760.

The Wild Card

EUR/GBP

At 0.8450 sterling is pressing the lower line from the consolidation pattern that has formed since Q2. forex traders should note that a close below the support line would expose 0.8400 from the trend line off of the 2009 low. Resistance is found at 0.8665 from the November 22nd high.

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.

By The Sizemore Letter

The credit card is back.  After a brief hiatus following the 2008 financial crisis in which debit card use outpaced credit card use, it appears that credit is back on top.  According to First Data, a major card processor, growth in credit card usage has outpaced growth in debit card usage in 2011, including the post-Thanksgiving shopping orgy we call Black Friday.

After the 2008 meltdown—a crisis that was caused from an excess of debt—consumers “got religion” for a while, cut up their credit cards, and chose to live within their means by using debit cards tied to their bank accounts.  But ironically, the Dodd-Frank financial reforms—ostensibly rammed down the banking industry’s collective throat to protect us from the evils of irresponsible lending and borrowing—made credit more appealing than debit for banks and consumers alike.  The Durbin amendment to Dodd-Frank limited the revenues that banks could earn from issuing debit cards, leading some to charge monthly fees to consumers for debit card use.  Not too shockingly, in many households the debit cards got cut up and the credit cards came out of the desk drawer.

Only in Washington DC could a law intended to encourage responsible financial behavior lead to an increase in credit card use.

As investors, it doesn’t pay to fret about politics.  Instead, we should simply follow the money to see who best stands to benefit.  We’ll start by looking at the two dominate card companies: Visa (NYSE: $V) and MasterCard (NYSE: $MA).

Visa and MasterCard are well positioned to profit from two powerful macro trends:

1. The shift to a global cashless society
2. The rise of the new emerging market middle class

Every year, a larger percentage of purchases are made using plastic.  In many U.S. cities, even the taxi cabs take credit cards.  So whether the boom times return or we sink back into recession, the revenues of the major card companies should continue to grow.  The explosive growth in internet commerce will only accelerate this.

There will always be some demand for the anonymity of cash, and the paper check will continue to be with us for a while.  But the march towards electronic payments is inexorable.

As is the rise of the emerging market consumer.  In much of the world outside of America and Europe, a large percent of buying and selling is done in cold, hard cash.  Given the long history of banking crises and government confiscation, many emerging-market consumers prefer to keep their savings out of the bank and under their respective mattresses.

Or at least they used to.  As living standards rise and millions of consumers join the ranks of the middle classes, there is a growing preference for electronic payments.  And this trends isn’t going to be reversed anytime soon.

I’m somewhat partial to Visa, as the stock has been one of my best-performing recommendations of 2011.  And barring a dramatic turn of events, Visa will also be the winner of InvestorPlace’s “10 Best Stocks for 2011” contest.

But with respect to the debit / credit issue in the United States, MasterCard finds itself in a better position.  MasterCard has a much larger percentage of its card portfolio in credit rather than debit.  Still, it’s hard for me to choose one over the other; both are high-growth, high-quality companies backed by unstoppable macro trends.  And as investors, we don’t have to choose.  We can own both, and that is exactly what I recommend you do.

Another option might be to go with credit-only card issues American Express (NYSE: $AXP) or Discover (NYSE: $DFS).  With no exposure to debit cards, these two would seem to have nothing to lose and everything to gain from a shift in consumer preference for credit over debit.

Investors need to do an extra layer of analysis on these two, however.  Unlike Visa and MasterCard—who make money by processing transactions and take no credit risk—American Express and Discover are banks and come with all the risks inherent in that industry.  Furthermore, as the premier business card, American Express is more closely tied to the state of the economy than Visa or MasterCard.  And Discover, as the smallest player in this game, faces a brutal competitive environment.

This is not to say that either is unattractive, per se.  American Express is the closest thing to a “luxury good” in the card universe, and Warren Buffett likes the company enough to make it a core holding of Berkshire Hathaway ($BRK-A).  And Discover is easily the most attractively priced of the group at just 7 times earnings and 2 times sales.  Discover also has a large student loan portfolio, and tends to target younger consumers with short credit histories.  This is a positive during boom times but a disaster during busts.

If you are a conservative investor betting on long-term trends, stick with Visa and MasterCard.  But if you believe that the U.S. economy will significantly improve in 2012, American Express and Discover are both likely to outperform their non-credit-risk-taking rivals.   Just hope that the Occupy Wall Street crowd doesn’t persuade Discover’s college student customers to revolt!

The Banco Central de Chile held its monetary policy interest rate unchanged at 5.25%.  The Bank noted: “Domestically, economic activity has evolved somewhat below projections, while domestic demand is still strong. Labor market conditions continue to be tight. Financial conditions are somewhat more constrained, reflecting the situation in global markets. Headline inflation has exceeded expectations somewhat, due to the incidence of fuels and foodstuffs. Core inflation figures remain contained. Inflation expectations are close to the target.”

Chile’s central bank previously also kept the monetary policy interest rate unchanged at 5.25% at its November meeting.  The Bank last raised its monetary policy interest rate by 25 basis points to 5.25% at its June meeting this year.  Chile reported annual consumer price inflation of 3.7% in October, compared to 3.3% in September, 3.2% in August, 2.9% in July, 3.4% in June, 3.3% in May and 3.2% in April this year; within the Bank’s inflation target of 2-4%.  

The US Federal Open Market Committee (FOMC) held the fed funds rate unchanged at 0 to 0.25 percent, and made no other changes to its policy. The Fed said: “To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.”

The Fed previously announced the commencement of “operation twist” at its September meeting, after it held monetary policy settings unchanged at its August meeting, where it committed to low rates until 2013.  The US reported inflation of 3.9% in September, compared to 3.8% in August, and 3.6% in both July, June and May, up from 3.2% in April, as high commodity prices caused a broader increase in prices.  Meanwhile the US economy grew 2.5% in Q2, up from 1.3% in Q2, and 0.4% in Q1 this year.  

By MoneyMorning.com.au

“I hate Christmas”, an old pal of ours used to say.

It’s not that he was a Scrooge. It’s not even that he was surly… or didn’t like people.

In fact, he was as generous, friendly and approachable as they come.

But there was one thing about Christmas he didn’t like… it would make him grumpy and irritable.

What he hated were the part-time Christmas drinkers.

The folks who wouldn’t go near a pub for 360 days of the year. But on the five days before Christmas they would hog the bar… sit in the best seats… and um and ah while ordering a Babycham or Pimms and lemonade.

Once these part-timers left – not to be seen for another 360 days – our old pal was happy again. (Or at least, not as unhappy).

There’s a similar group in the market that annoys us just as much.

In this case it’s the part-time gold trader. Flitting in, making and losing a fortune… and then flitting out again. Bloomberg BusinessWeek reports:

“…the slump in equities spurred some investors to sell their gold to cover losses.”

That kind of reporting annoys your editor.

The report implies that all those selling gold are in profit. And by inference, everyone who is selling gold has bought it using 100% cash.

But let’s get something straight. Gold is just as much at the mercy of easy credit and speculation as any other investment. To think otherwise is naïve.

And to think investors are handing in fully-paid-for gold bars in exchange for cash so they can pay off stock losses is… just plain dumb. We’ll explain why in a moment.

The reason we suggest you buy gold and silver a bit at a time is because the price is volatile. This week alone, gold has lost over $100… or nearly 1%. It doesn’t sound much. But for the leveraged part-timers, it’s huge.

In contrast, for the cash buyer of gold it’s not a big deal. In fact, for a cash buyer it represents the chance to buy a bit more. In fact, we’d say, if you haven’t yet bought your December allocation of gold, why not buy it today?

Unless you think it’ll be a bit cheaper tomorrow of course…

Gold Suffering from Leverage

But cash buyers aren’t the investors who typically sell to cover losses on the stock market.

The investors who are selling gold are those who borrowed to buy it. That means the lower gold price is just as much about traders bailing out of losing trades as it is about locking in gains on winning trades.

For example: one gold futures contract on the U.S. Comex exchange covers 100 ounces of gold. Last week the contract had an underlying value of USD$174,000… today that same contract has an underlying value of USD$162,600.

That’s a loss of USD$11,400. As it happens the initial margin for a gold futures contract (the amount you have to deposit into a futures account to buy or sell a futures contract) is USD$11,475.

In other words, if it wasn’t for futures exchanges having systems to lower the chances of traders losing their entire account balance, gold futures buyers would have been wiped out.

Not only that, but for a trader leveraged to the maximum, it would only take the gold price falling USD$30 for it to trigger a margin call (that’s where the trader has to tip more cash into their account, or sell some of their futures contracts to cover the margin on their loan).

When you consider the gold price has fallen USD$120 in a week, it doesn’t take Einstein to work out it will put pressure on a trader’s bank balance.

So rather than speculators selling gold to pay for stock losses, odds are they’re selling to cut losses from their super-leveraged gold positions.

The big question is: what’s the outlook for gold now?

Well, this is where it gets really interesting. And if you’re a long-term gold buyer, it’s probably the message you want to hear…

Gold Going Down… Further to Go?

Near term, the gold price looks to be heading lower. We asked Slipstream Trader, Murray Dawes for his thoughts. Here’s what he told us:

“Gold has been in an incredibly steady uptrend for years. We haven’t seen a retest of the 200-day moving average since the 2008-2009 crash. With the European Central Bank and the U.S. Federal Reserve pouring water on hopes of money printing in the near future, we may be on the cusp of another retest of the 200-day moving average in the short term at USD$1,600… therefore I expect to see a dip towards this area in coming weeks that could clear out any weak longs and prepare us for the next leg up.”

[Ed note: by the way, Murray has just posted his latest free weekly stock market update on YouTube. You can watch it by clicking this market update…] link.

Here’s the gold chart below:

We agree with Murray. But we’ll go one step further. To your editor’s untrained technical eye, USD$1,600 is the level to watch for. And after that, USD$1,500 is the next stop.

You’re probably thinking, “Why’s that good for gold buyers? Don’t they want it to go to $5,000 an ounce?!”

We’re sure they do. But anyone who knows anything about investing knows the path from A to B is rarely in a straight line.

What we’re potentially seeing now is the gold crash. Remember, it was above USD$1,900 just a few months ago. Today it’s about 14% lower. If it falls to USD$1,500 that would mean a 22% drop from the high.

That’s a crash in anyone’s book.

But here’s the thing. That’s what makes this even more of a buyers’ market for gold. As Bloomberg BusinessWeek notes:

“Open interest, or contracts outstanding, in gold futures traded on the Comex exchange in New York, fell to 427,756 contracts, from 546,601 in July…”

To us it says traders aren’t taking profits to cover losses on stock trades. But rather it tells us traders are locking in profits (those who short sold gold) and losses, and those new traders aren’t yet ready to make big bets on the next direction for gold.

The Gold Dip You’ve Waited For

If that attitude continues, you could see gold move into a holding pattern… where it drifts lower for a bit… then higher for a bit… and so on. Similar to what you see in all markets after a boom and bust.

It happens in the stock market. It happened in overseas housing markets. It’ll happen in the Aussie housing market (once the crash ends). And it’s set to happen in the gold market too.

In other words, the part-timers are leaving the market… Just like the Christmas drinkers who leave the pub to find other things to do.

Investors who bought in hoping for big short-term gains (gold to $5,000) are disappointed by the lack of price movement. So they get bored and look elsewhere. They’re the part-time gold investors… the fair-weather crowd.

But for the genuine gold buyers it’s an opportunity to sit back, watch the market and keep buying gold. If you are a genuine gold investor, then rather than heading for the exits today – and potentially the next few months – this could be the price dip you’ve been waiting for.

Cheers.
Kris

P.S. Just as now is a great time to top up on gold, if our old pal, Dr. Alex Cowie is right, now is a great time to stock up on cheap gold and silver stocks too. If you haven’t seen it yet, make sure you watch the Doc’s latest research presentation for he says are the six best resource investments for 2012. Click here for details…

Related Articles

Special Report: Six Extraordinary Resource Investment Opportunities for 2012

How to Buy Gold and Silver

The Only Gold and Silver Stocks to Buy

The Secret Aussie ‘Bank Run’ is a Sign to Buy Gold

Why Gold Should Become Your ‘Stay Rich’ Asset

From the Archives…

How to Turn Paper Money into Silver and Gold
2011-12-09 – Kris Sayce

Will Silver Break Through $50 an Ounce in 2012
2011-12-08 – Dr. Alex Cowie

Investing in the Market for Survival and Prosperity
2011-12-07 – Aaron Tyrrell

China, the U.S. and the Scramble for Commodities
2011-12-06 – Dr. Alex Cowie

Santa Claus: A Market Rally Not Worth the Risk
2011-12-05 – Kris Sayce

For editorial enquiries and feedback, email [email protected]

Is This the Gold Buying Dip You’ve Waited For?

AUDUSD remains in downtrend from 1.0378, and the fall has extended to as low as 0.9979. Further decline could be seen after a minor consolidation and next target would be at 0.9800 area. Resistance is at the downward trend line on 4-hour chart, only a clear break above the trend line could indicate that the fall from 1.0378 is complete.

Forex Signals

By The Sizemore Letter

Charles Sizemore recently gave his thoughts on Whole Foods (NYSE: $WFM) t0 MarketWatch writer Matt  Andrejczak (see “Whole Foods Shareholders Big Payday“)

Whole Foods, bolstered by stronger cash flows, is again paying a dividend, hiking it last month 40% to 56 cents a share on an annual basis. That’s less than a 1% yield but something nonetheless.

Some investors say they like Whole Foods market position but think the stock is getting too pricy. Charles Sizemore, who runs Sizemore Capital Management, said Whole Foods is benefiting from Baby Boomer shoppers seeking healthier foods as well as stable incomes of wealthier Americans.

“I like the company, but I’m not crazy about the stock,” Sizemore commented.

Whole Foods trades at roughly 30 times its 2012 estimated profit of $2.27 a share, according to FactSet’s latest analyst survey. Kroger (NYSE: $KR)  and Safeway (NYSE: $SWY) trade around 11 times next year’s earnings.

Whole Foods has a lot going for it and benefits from several macro themes followed by the Sizemore Investment Letter. The first is the aging of America. As the Baby Boomers age, they are taking their health a lot more seriously, and part of this is having a healthier diet, including more natural, organic food. This is a theme that will likely have some staying power.

The other theme is the divergence of the “Two Americas.” Working class and younger Americans have taken the brunt of the recession and slow growth. But highly-educated and wealthier Americans are doing just fine for the most part. The luxury goods sector is highly attractive, and Whole Foods can be considered “luxury food.” Tying into this theme is a growing appreciation of environmentalism and all things “green,” and Whole Foods appeals to these sentiments.

The grocery business is a tough, low margin business to be in, but Whole Foods is making it work by going high end, which in groceries means organic.

But a great business does not necessarily make a good stock.  And as explained in the MarketWatch article, Whole Foods is simply too expensive at current prices.

If you liked this article by Sizemore Insights, you’d probably enjoy The Sizemore Investment Letter, our premium members-only newsletter. Click here for more information.