InvestMacro FX

By ForexYard

After a lengthy period of jawboning the Japanese Ministry of Finance (MOF) moved to weaken the yen by selling an estimated ¥7 Trn. The timing of the move may have caught the market looking the other way given market positioning. However, the MOF failed to deliver a knockout blow as the technical damage on the charts was minimal at best.

Economic News

USD – USD is Bid in Risk Off Day

With the monthly close which caps an October that saw a sharp run up in the prices of risky assets the USD has caught a bid. $89 Bn of this bid likely came from the MOF and increased criticism of the European agreement has most markets risk averse to start the week. The bankruptcy filing by MF Global may have played a part in the day’s movement as the broker is a major player in many fixed income and derivative markets including European bonds.

European data underperformed today with an unexpected increase in the Italian unemployment rate and disappointing German retail sales for the month of September which fell 0.14%. US data was also lower than expected with the Chicago PMI slipping to 58.4 from 60.4. Expectations were for a smaller decline to 59.2. On a bright note Canadian GDP was stronger than forecasted rising 0.3% in August on consensus forecasts of 0.2%. This week has a number of headline events with three central bank meetings (RBA, Fed, ECB) and key data points from both the UK (Q3 GDP) and the US (NFP).

The EUR/USD has come off of its Thursday high and is testing short term support at 1.3980. A break here and the pair could shed another 70 pips to the October 17th high of 1.3910. Cable looks stronger prior to tomorrow’s glut of UK data. Resistance comes in at last week’s high/200-day moving average at 1.6150 with the next major resistance at the late August high of 1.6450.

JPY – Yen Intervention Delivers a Punch but fails to Provide Knock Out Blow

In their latest foray into the FX markets the MOF did a good job of catching the market off guard. Rumors of intervention were circulating last Thursday and Friday but the MOF smartly waited until the moment had passed before letting their traders sell an estimated ¥7 Trn or $89.8 Bn during the week’s opening Asian trading session.

Markets looked ill prepared for the latest round of intervention as this past week’s CFTC Commitment of Traders Report showed speculators held their largest long position in the JPY in almost two years. While the sheer numbers and the initial move look overwhelming the technical damage on the charts was minimal. The USD/JPY soared to a high of 79.50 before Japanese exporters began to offer at more attractive prices. As such the pair failed to overcome its 4 year downtrend line from June 2007 and quickly fell to the 77.80 support. Below here support is found at 77.50 as well as 76.10 from the bottom of the August/September consolidation pattern.

It will be interesting to see what the reaction by the G20 will be to the Japanese government’s decision to take on JPY strength alone once again. Will the Japanese representation be met with criticism or friendly smiles given the likelihood of a Japanese investment in the EFSF?

AUD – RBA Could Lower Interest Rates

Today the Reserve Bank of Australia will announce its interest rate decision with most analysts expecting a 25 bp rate cut to 4.50%. A drop in core inflation may allow the RBA some room for a cut in the rate but a recent uptick in global economic data (US Q3 GDP, Chinese PMI) has some rethinking their all but certain Australian rates forecasts from one month ago when the global investment climate was considerably more foggy.

Nevertheless the AUD has performed well in October with the AUD/USD rising 9.5% in-line with other risky assets. A breach of the October high at 1.0750 will have traders looking to the all-time high from July at 1.1080. Support is seen back at 1.0320 from October 26th low.

Gold – Spot Gold Prices Down with USD Gains

Spot gold prices were down as the USD posted gains after the FX intervention by the Japanese MOF. However, spot gold prices may have more room to run higher should the Federal Reserve signal this week its intention to ramp up its bond buying program once again (QE3).

Gold traded as low as $1,704 during the Asian trading session but has since paired those losses. The $1,710-$1,695 range has been a significant price range since the sharp 3-day decline in spot gold prices during late August. A move higher may have scope to $1,772, the 61% retracement from the collapse in gold over the month of September.

Technical News

EUR/USD

An impressive run higher over the month of October took the EUR/USD as high as 1.4250, the 61% retracement from the May to October move. However, a failure of the pair to overcome this key technical mark does not bode well for the EUR in the near term. Also worth noting is the failure of the pair to move above its previously broken trend line from the June 2010 and the January 2011 lows. Falling stochastics on the daily and weekly chart also point to declines in the value EUR/USD. Support is located at 1.3915 from the October 17th high followed by 1.3650 off of the October 18th low and the October low at 1.3145. The 61% retracement level will serve as initial resistance with additional selling perhaps at 1.4450 from the trend line off of the May and July highs.

GBP/USD

Cable has failed to climb above both its 200-day moving average and stopped short of its 61% Fibonacci retracement target from the April to October move which at 1.6150 should serve as initial resistance. A move higher could go on to test the 1.6450 resistance off of the August high though daily stochastics have crossed and the weekly stochastics are beginning to roll lower as well. As such, a move lower could find support at 1.5890 from the October 26th low as well as the October 18th low of 1.5630.

USD/JPY

Another round of intervention has lifted the USD/JPY 400 pips for a 5.29% gain. However, the pair’s sharp move higher was unable to break a key falling trend line from the 2007 high which comes in this week at 79.70. With the long term downtrend still intact a move lower may once again test the all-time lows the pair will first encounter support at 77.85 from the September high as well as 77.50 from the mid-October high. Should the intervention continue the Japanese Ministry of Finance may find willing offers waiting at 80.20 which was the peak of the last round of intervention in August.

USD/CHF

The Swiss franc has once again resumed its downtrend versus the USD after moving as low as 0.8550, a level that has previously served as both support and resistance. A bounce from here could find an offer at 0.8900 from the resistance line off of the October peak. Should the downtrend from October extend into November a break of 0.8550 may have scope to 0.8240 from the August high.

The Wild Card

EUR/JPY

The intervention by the Japanese Ministry of Finance propelled the pair 4.1% but the EUR/JPY failed to break above two major technical barriers; the August high at 111.90 and the pair’s 200-day moving average at 112.70. Forex traders should note should the long-term downtrend looks to have held. Support may be found at the previously broken trend line from the April and July highs which comes in at 109.80 followed by the last week’s high of 108.10.

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.

Source: ForexYard

A few quick notes for the European open. It has been an ugly start to the day with the French CAC 40 opening down by 1.8% with financials being the hardest hit. Yesterday’s risk off day has carried into this morning’s trade as the announcement of a Greek referendum weighs on the EUR.

The referendum is a risky gamble for Greek Prime Minister George Papandreou and the risk for a failure is high which could prompt early elections in the only remaining bailed out government that is still in power since taking financial aid. The EUR/USD has broken below the big round number of 1.3700 and the pair has support at 1.3650 from the October 18th and 20th lows followed by a 61% retracement of the October move at 1.3565.

Read more forex trading news on our forex blog.

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.

The euro declined 0.4 percent to $1.3855 in late-day trading as it became increasingly unlikely that European Officials would arrive at a finalized plan for dealing with the growing European debt crisis during a meeting today in Brussels. German Chancellor Angela Merkel even went so far as to blunt expectations for a deal saying “the work’s not been done yet”.

One of the sticking points that continues to elude resolution is the question of the write-down percentage Greek bond holders will be forced to accept. Earlier rumors placed the “haircut” to be 50 percent – this is far greater than the 21 percent banking representatives suggested as being acceptable.

The spotlight also turned to Italy where, yesterday, the coalition government led by Prime Minister Silvio Berlusconi failed to implement a series of spending cuts imposed by European Union officials. The Italian government had agreed to reduce spending in exchange for a pledge by EU members to continue to buy Italy’s bonds. As a result of the government’s failure, Berlusconi spent the day working on a plan to demonstrate to EU officials that the government does have a credible plan to meet the spending reduction targets.

In addition to these developments, media outlets in Italy are reporting that Berlusconi has informed his coalition members that he will resign as Prime Minister by the end of the year. This was immediately denied by the Prime Minister’s office but pressure is mounting on the current administration.

Italy’s debt has ballooned to 1.9 trillion euros ($2.6 trillion) and is now equal to 120 percent of the country’s annual Gross Domestic Product.

Scott Boyd is a currency analyst and a regular contributor to the OANDA MarketPulse FX blog

Oct. 26 (Bloomberg) — Rajat Gupta, the former Goldman Sachs Group Inc. director once accused of feeding inside information to Galleon Group LLC’s Raj Rajaratnam, will face federal charges, a person familiar with the matter said, making him the highest-ranking executive to be named in the probe. Maryam Nemazee and Poppy Trowbridge report on Bloomberg Television’s “The Pulse.”

Oct. 26 (Bloomberg) — Randolph Koppa, president of the Trade and Development Bank of Mongolia, talks about Mongolia’s mineral wealth and the outlook for the nation’s economy. Koppa also discusses investment opportunities in the region. He speaks in Hong Kong with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)

Want to Invest in India? Keep One Eye on its Coal Production

by David Fessler, Investment U Senior Analyst
Wednesday, October 26, 2011

I’ve said it over and over – economic growth requires a cheap source of home-grown energy.

It doesn’t matter what country we’re talking about. Without cheap energy, economic growth stagnates, plain and simple. If energy is expensive, transportation gets expensive, and the cost of goods gets expensive. Consumer spending slows, and economic growth stagnates.

India may be facing just such a problem… To continue its economic growth, which is running at about nine percent annually, India needs to add 75,000 MW of power generation over the next five years.

India burns coal to generate about half of its electricity. In 2011, it’ll import about 54 million tons to generate power.

Nearly 85 percent of new generation over the next five years is targeted to come from coal-burning plants. That translates into a 400-percent rise in coal imports – to about 213 million tons by 2016 or 2017.

This is particularly ironic in that India is sitting on 10 percent of the world’s coal reserves, or approximately 267 billion tons.

How can a country with such vast reserves of coal have to increase its imports four times in as many years? The short and simple answer is bad policy decisions on the part of the government.

Coal India, a state-run monster, is the country’s main coal producer. Its 2010 production was a stagnant 431 tons. It’s suffered from increased environmental hurdles, difficulty in obtaining land and lack of adequate investment by India’s central government.

India’s Growing Supply Gap

The widening power generation gap is particularly acute in India. Its rising middle class is demanding more shopping malls and air-conditioned homes and offices. The peak-power deficit (the amount of power needed versus what can be supplied) grew to 12 percent last year.

It’s going to get worse, and that could have a stalling effect on the country’s economic growth. Remember what happened here when oil prices shot through the roof?

India’s demand for coal has made Coal India the second-most valuable company in the country. Its 2010 IPO raised a record $3.5 billion. But even with that kind of investment, it will struggle to meet even a fraction of India’s additional demand for coal.

A report published by India’s Central Electric Authority, remarked “The Ministry of Coal/Coal India need to be impressed upon to formulate a contingency plan to meet the demand of the power sector.”

The reality is that there is no contingency plan. Even if the government came up with one, nothing would change short term.

The bottom line is that India will be importing four times the amount of coal it does now in five years. Countries and companies who export coal to India can sell all they can produce.

The demand from both India and China will keep a floor under coal prices, and the stocks of companies that produce and export it. Consider any one of the large coal exporters as a great place to start investing in the coal sector.

Good investing,

David Fessler

Article by Investment U

Canadian Finance Minister Jim Flaherty told a press conference on Tuesday that despite uncertainty in the Eurozone and a slowing U.S. economy, he expects Canada will remain resistant to recession. Nevertheless, the Finance Minister noted that he is prepared to act if necessary noting that the government will consider further stimulus spending if conditions warrant.

Despite the Minister’s optimism, recent feedback shows that the Canadian economy is slowing with a more modest level of growth now expected in the coming months. Acknowledging the revised outlook, the Minister noted that the government will keep close tabs on the situation and is prepared, if necessary, to provide stimulus as was done during the previous recession.

Comments from Bank of Canada

On the topic of stimulus spending, the Bank of Canada voted to maintain the current 1 percent overnight rate noting that “considerable stimulus” remains in the Canadian economy. This was due to previous government spending and the continuation of record-low interest rates. This comment was taken as a sign that the Bank of Canada does not intend to intervene at this point and interest rates are expected to remain unchanged well into next year.

The Bank of Canada statement did raise eyebrows, however, with a prediction that the Eurozone would likely fall back into recession next year. While the Bank expects the recession in Europe to be short-lived, the potential impact of negative growth in the Eurozone, together with a downgraded outlook for U.S. growth, were cited as potential risks to growth in Canada.

Scott Boyd is a currency analyst and a regular contributor to the OANDA MarketPulse FX blog

Today is the day of reckoning for the Euro as the market is expecting the final resolution to the Euro debt crisis. At this point it is still uncertain at exactly what time the details of the plan will be released so stay on your toes today and pay attention to the news!

Yesterday’s risk aversion and subsequent sell-off non-withstanding, the markets have been moving markedly higher since early October and it looks like we have put in a bit of a “V-bottom”, which I identified in yesterday’s chart of the day. It will be interesting to see if the market can sustain this rally in the face of the Euro announcement.

There are many rumors circling around the details of the plan so I will throw a few out there that I am hearing but take them with a grain of salt as they may be utterly worthless when the plan is announced.

For starters, Greek private bondholders will be taking a “voluntary” 50% haircut on their holdings, meaning losses. How this doesn’t constitute a technical default is beyond the scope of my limited understanding, but If I held bonds and CDS, I would push for default and not voluntarily agree to losses as I can get paid out 100% from the insurance. This may take a while to play out and I am as intrigued as anyone to see how it goes.

Next, the size of the EFSF is rumored to be in the $1 trillion dollar range, though it is uncertain if this comes as a combination of the current EFSF and the ESM (two separate facilities) or if they plan to leverage up the fund through the ECB. Banks will need to be re-capitalized to stem the losses from the haircut on the Greek bonds, and will need to be shored up if contagion occurs.

The idea of an SPV, or special purpose vehicle, is being floated that will allow private investors to invest with some sort of guarantee or backstop from the funds. This may be a way to funnel more IMF aid into the equation.

Lastly, there needs to be increased fiscal austerity, most notably now from Italy as they are the region’s 3rd largest economy and are currently being vilified as the next potential domino to fall. It is amazing to me that no one even talks about Portugal or Ireland any longer.

So what is my outlook? I think that the markets will rise on the announcement, perhaps dramatically, only to begin to fall once the details are released. I think EUR/USD can get above 1.40 today, but resistance up at 1.413 may hold so if the3 situation presented itself, I would probably be looking to short the pair in the high 1.40s with the hope that it could move down to 1.375 where at that point I would be a longer-term buyer.

Other news out there today is that CPI data in Australia came in lower than expected, reducing expectations for further rate hikes and actually putting rate reductions into play. While the RBA will likely hold for a bit to see how this all shakes out, they will be keeping a keen eye on inflation. Later tonight, the RBNZ will be out with New Zealand’s rate decision and a change is unlikely considering their lower CPI data reported yesterday.

Here in the US, durable goods orders fell less than expected which is a positive I suppose, but yesterday’s consumer confidence figures were absolutely atrocious. However it is important to note the discrepancy between what people say and what they actually do. Later this morning, new home sales will be out.

But all eyes and ears will be waiting for the Euro announcement. The markets appear poised to move higher as stock market returns have been flat for the year so if you’re a big-time money manager, you essentially have one quarter to make it happen and earn some cash or even keep your job. In addition, I think global inflation has been somewhat masked by the cloud of uncertainty of the euro debt crisis and we have seen recent big-time gains in commodities, most notably in oil and gold which are back above $90 and $1700 respectively.

The idea that QE3 may be on the table is likely contributing to Dollar weakness, but all of these other factors are important as well. US corporate earnings have largely been better than expected which means that companies gain make money in a downbeat economy and despite barriers created by bad government policies and potential higher taxes.

With a declining US dollar and next to nothing bond yields, the stock market is likely going to be the market of choice for investors to close out the year so I expect the correlations in the forex market to continue to keep up. The Dollar weakness theme is evidenced by a strengthening Japanese yen, which is at new all-time highs of 75.75. While Japanese officials are crying, there may be very little they can do about it.

So stay on your toes today and be quick to react. Don’t try to be a hero in front of these markets, as there is no telling what may happen. Good Luck!

By Mike Conlon, ForexNews.com

Oct. 26 (Bloomberg) — David de Garis, a senior economist at National Australia Bank Ltd., talks about the nation’s economy and central bank monetary policy. Australia’s underlying inflation slowed last quarter to the weakest pace in 14 years, sending the nation’s currency lower as traders bet the central bank will cut interest rates next week. De Garis speaks with Linzie Janis on Bloomberg Television’s “First Look.” (Source: Bloomberg)

Source: ForexYard

Typically US GDP is a high impact event in the foreign exchange market though tomorrow’s data may be overlooked given the tensions in Europe and the continued talk of QE3 by the Fed.

Today US core durable goods orders for the month of September climbed 1.7%, handily beating consensus forecasts of 0.5%. The better than expected result combined with this past month’s surprisingly positive NFP jobs report may help to shift investor expectations higher regarding tomorrow’s Q3 GDP report. Consensus forecasts are for 2.4% growth but perhaps the US economy is growing at a faster pace than forecasted?

Unfortunately, this data may be overshadowed by growing expectations for QE3 regardless of the growth data as unemployment levels remain elevated. This could keep pressure on the USD despite the tensions in Europe and today’s USD gains. A better than expected US GDP would also be positive for the “risk on” trade.

At print time the recent trend line rising from the October low remains intact with the EUR/USD failing to make a decisive break. A move below this line could find a bid at 1.3650 from where the October 18th low and the 20-day moving average converge.

Cable is down more than one cent today but yesterday’s current account numbers speak well for the UK economy. GBP/USD failed to move above its 100-day moving average which is just above the 50% Fibonacci retracement from the April to October decline but the pair has support at 1.5850 from the top of last week’s consolidation pattern. A deeper move could have sterling bulls lurking at 1.5780 from the rising support line off the October 12th low.

Read more forex trading news on our forex blog.

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.