InvestMacro FX

Let’s take a look at the chart of the Philippine Stock Exchange Composite Index (PSEi) once again. Based on my technical analysis the last time (kindly check this), I mentioned that there was a falling wedge pattern forming within the 2-year ascending channel. In case you do not know, falling wedges are naturally bullish since it represents a temporary price retracement of a financial instrument or in layman’s terms, this occurs because of profit taking. It usually forms inside an ascending channel like what we had here. However, unlike most falling wedges, this one failed to perform its purpose. Instead of breaking out, the PSEi fell from the supposedly bullish pattern along with the 2-year ascending channel breakdown.

The Philippine Stock Exchange Index closed slightly below its 200-day moving average last Thursday after dropping by a whooping 2.7%. This could be a breakdown to many, however, it isn’t convincing for me. True enough, the index rose by 0.3% the next day despite the decline of many index stocks. The 11.11% gain of AEV (Aboitiz Equity Ventures, Inc.) was a big factor in pulling up the PSEi since this publicly listed company has a 6.52% weight in the index (kindly check my colleague’s AEV analysis).

The Philippine Stock Exchange Index is currently clinging to the 200-day moving average and personally, I’m expecting a bounce back up from this area. If I’m right and the bulls take over, the immediate hurdle will be the “mini descending channel”. A move pass above that, could make way for the next resistance at 4,000.00. Otherwise, the index could continue to descend and the next support waiting is around the 3,550.00-3,600.00 area (labeled as “next significant support” in the image above).

More on LaidTrades.com …

By Kent Lucas, Editor, Safe Haven Investor, taipanpublishinggroup.com

Note From Editor Sara Nunnally: This week’s guest editorial comes from Kent Lucas, editor of Safe Haven Investor. I feel that Smart Investing Daily has a natural connection with Safe Haven Investor. While we bring you new investing ideas and break down complex investing strategies to help you make better financial decisions, Kent’s service is helping investors secure their wealth with tried and true methods that every investor — no matter how savvy — should be employing.

Kent‘s article is one of those methods. We’ve consistently told you that a diverse portfolio is a healthy portfolio, and diversity means holding cash.

But as every investor’s portfolio is different, it’s hard to say just how much of your portfolio should be in cash. Kent helps you determine what’s right for you, so read on…

How to Be a Better Investor: How Much Cash Should I Have in 2011?

All asset allocation strategies should include cash as a required asset for an investor’s portfolio.

When I say cash, I’m referring to accessible money that is safe and is not at risk of losing its value. Stocks, bonds, real estate and commodities all are asset classes that can lose value — we know that all too well. But cash is like a rock for your investment portfolio. No matter what happens, that $5,000, $50,000 or $500,000 part of your portfolio that is in cash is safe. Very safe.

Last year, when the markets were the most volatile, I made it clear that you should own cash, in two mid-year alerts dated May 28 and June 4, 2010. They’re definitely worth a close look. Here’s one excerpt describing the value of cash:

And just as holding cash can be a savior and a major source of wealth preservation when markets are tumbling; cash is also a great source of liquidity. As I said last week, cash does more than protect wealth; it allows us to keep some “powder dry”; to be able to buy some attractive ideas out there, especially if markets fall any further.

— Safe Haven Investor Alert, May 28, 2010

How you “hold cash” is up to you. Your cash could be under a mattress or in a coffee can like my father used to do. More common instruments include U.S. government T-bills, bank certificates of deposits (CDs), commercial paper or other cash-based investment vehicles that are offered by your bank, broker or a mutual fund company.

You should keep a certain amount cash available for buying opportunities; say, after a correction that we probably will have this year. If so, then you should have your cash linked to your trading account.

Unfortunately, in today’s market they’re all earning about the same amount of interest — between zero and 1%.

In fact, my bank called me last week, telling me I had to come in for a talk about account changes. Well, the only account changes I’ve received of late pertain to higher fees or higher balance requirements, but I told the guy I would stop in soon. He wanted just five minutes of my time.

When I was in the neighborhood I wandered in. I had to wait more than five minutes to see him, so he already spent his five minutes — but I’m not that harsh. But when I did sit down in his cubicle, I reminded him that he asked for five minutes of my time but I’d give him seven minutes.

Well, he wanted to tell me about a new deal — that if I added $10,000 dollars to a new or existing account, I’d get a $100 bonus in addition to earning 0.02% annual interest. At first, I laughed to myself and smirked, until I realized that $100 equates to 1%, which, unfortunately, is not bad in this environment.

And that’s OK, because having cash should make us feel safer. We have money that we can’t lose. We have funds for a rainy day, not tied up in a losing investment.

(By the way, I may be a guest editor for Smart Investing Daily, but regular editors Sara Nunnally and Jared Levy are always simplifying the market with their easy-to-understand investment articles.)

How Much Cash Is Right?

So how much cash should you hold for 2011? Of course, it varies by individual based on several factors. Your risk tolerance, your age, how much of your nest egg you have and will need, and your health, just to name a few variables. But those variables matter more when thinking of your ideal mix between stocks, bonds and alternative investments (commodities, hedge funds and real estate, for example).

For your cash allocation, it’s not that complicated. As I mentioned above, cash is more important for capital preservation, liquidity and making sure you have some money available for any attractive buying opportunities.

Five to fifteen percent of your total investable assets makes sense for most individuals with several years until retirement. You should tend toward the low end of that range today, for the first part of 2011, because I’m bullish on the stock market. Specifically, you should have more of your money put to work in a rising market.

Later in the year, we might get more conservative and that cash portion could move higher, say toward 10% to 15%.

Some of you might be wondering about inflation and how it might eat into your real cash balance. That’s a good question. But don’t view cash as an inflation-fighting asset. It’s only a small (but important) part of your total financial portfolio used for other purposes. Not to generate excessive returns. Investing in stocks or owning the right bonds such as Treasury inflation-protected securities (TIPS) will fight any inflation.

Sleep Well

Understanding the importance of cash and why you hold the amount that you do will allay some of your fears of investing in this delicate market. Cash is a great cushion and a critical balance to the rest of your portfolio.

You might not have your cash under the mattress anymore. But having cash safely put away somewhere should allow for a good night’s sleep.

*Editor’s Note: One of Kent’s important goals for Safe Haven Investor in 2011 is to make you feel safer and more confident about investing. His service is a must-have for anyone looking to make their portfolio as secure as possible. Follow this link to learn more about Safe Haven Investor.

About the Author

Kent Lucas is the Editor of Taipan’s Safe Haven Investor and Global Income Generator. He has a Bachelor’s Degree in Economics from Harvard University, his Master’s from Stanford University and over 20 years of financial and business experience. His background includes seven years as a research analyst and portfolio manager for a leading investment management firm. He has also actively managed $1 billion worth of equity assets, with particular attention to multi-industrial companies along with auto, construction and farm equipment-related companies. Kent has also worked in leading financial institutions’ divisions including tax-exempt derivatives, corporate trust, and equities sales and trading.

As the Editor of Taipan’s Safe Haven Investor, Kent uses his stock market investment system and the 13F Disbursement Plan to uncover the most profitable long-term investment opportunities found in the SEC 13F Disclosure Form. For Global Income Generator, Kent hand-picks undervalued stocks from countries impacted by current events or technology that lead to potential rises in share price.

Aboitiz Equity Ventures or AEV in the Philippine Stock Exchange helped carry the entire exchange with a timely gain (supported by volume) when it rose by 11.11% to close the week at PHP 37.00 from Thursday’s closing of PHP 33.30. As you can see from its chart above, AEV has been slumping for awhile as it has been trading within a descending channel since marking a high of PHP 41.00 back in December 3, 2010. Increased buying interest due to a reason that I will explain shortly caused it to make a bullish breakaway gap.

Friday’s move immediately placed AEV above the channel and the two (red and pink) moving averages. AEV even reached a high of PHP 38.5 during the day but quick profit taking pushed it back down towards the resistance of the channel. The said resistance and the two mentioned moving averages now should act as supports to prevent it from filling the gap. Looking at the MACD, you will notice that it is ripe for a bullish crossover as well (histogram about to turn positive). Moreover, an RSI reading of above between 50 and 70 (increasing upward momentum but still not overbought) indicates that AEV still has room to move higher.In any case, a rebound from the said supports could push AEV back to its previous high at PHP 41.00.

News that AEV will be included in the MSCI (Morgan Stanley Capital International) Philippines Investable Market Index on February 28, 2011 led traders and other investors to take a long position on the stock. MSCI Philippines is a benchmark that measures the performance of the top 99% by market capitalization of equities that are listed in the Philippine Stock Exchange. Inclusion of AEV in the index fund is bullish for the stock since international funds that track the index will then need to take a position on AEV as well.

More on LaidTrades.com …

By Sara Nunnally, Editor, Smart Investing Daily, taipanpublishinggroup.com

Much of the focus on the unrest in the Middle East, particularly with Egypt, is what the ramifications are for terrorism and crude oil prices.

From an investment standpoint, that’s forward thinking. Some investors may be interested in looking at defensive stocks, or weapons makers, or — of course — oil companies and crude oil futures… But they may be overlooking something.

They may be forgetting what sparked the whole uprising to begin with.

Food. More specifically, food prices.

It’s more than a little ironic that the villager who was selling vegetables without a license in Sidi Bouzid, Tunisia, set himself on fire after a police officer confiscated his produce and spat in his face, was the catalyst for the surprise uprising in Tunisia.

His name was Mohamed Bouazizi, and he was 26 years old.

Economists and analysts are naming Tunisia and Egypt the first victims of the global food crisis, and that they might not be the last.

From New Scientist:

What seems clear is that surging food prices helped trigger both uprisings and protests elsewhere in north Africa. The region depends on bread and imports half of its wheat. So when world wheat prices soared by 50 per cent in 2010, Egypt massively increased spending on the cereal to sell to its poorest citizens as subsidised [sic] bread. Yet bread prices rose 25 per cent on private markets in Cairo.

This isn’t the first time food prices have hit the main stage, either.

(By the way, if you want to stay on top of market-moving events like this, sign up for Smart Investing Daily and let me and my fellow editor Jared Levy keep you up-to-date with our easy-to-understand investment articles.)

Back in 2008, in the first half of the year, some 11 people were killed fighting over bread in bread lines where bakeries had only a limited supply.

As commodity prices were booming, bakers who were supposed to be making subsidized bread for the poor were selling their wheat on the black market or to private bakeries for up to 10 times the subsidized price.

The result was a severe shortage that resulted in deaths and angry poor people.

There was unrest then, as well, quelled only by a huge increase in subsidies for things like bread. But one Egyptian lawyer interviewed by USA Today back in April 2008 said, “People in Egypt may be considered passive or silent, but there’s a limit to this. And when they reach that limit, one day there will be a popular explosion.”

That statement has been made plain by the protests and demonstrations in Tahrir square.

And as noted before, this could only be the beginning. That USA Today article, “Tension in Egypt shows potency of food crisis,” reported back in 2008 that 37 countries face a food crisis, according to the United Nations’ Food and Agriculture Organization.

Back then seven other countries suffered food riots, including Haiti, Ivory Coast and Indonesia.

The FAO now says that food prices have reached an all-time high, even higher than the spikes that brought about the riots in 2008.

Investing in agricultural commodities is no longer just a trend, it’s a long-term boom. These tensions are not going to go away. Indeed, food prices will stay high for at least another six months, until we see another harvest.

That spells no relief for poor and hungry countries.

You can certainly expect crude oil prices and defensive stock prices to climb over this time, too. But look at what’s happened to some agricultural commodities leading up to today’s continued unrest.

View Larger Chart

This is a six-month chart of March futures for wheat and corn (corn is in green with prices on the left). Look at the massive increases since mid-November 2010… Wheat has climbed more than 35%, and corn has climbed almost 29%.

In response, look at what some agricultural investments have done over the same time period.

View Larger Chart

This six-month chart shows the iPath Dow Jones UBS Grains ETN (JJG:NYSE) and the PowerShares DB Agriculture ETF (DBA:NYSE).

I first told you about these two last month, and I called for a breakout in both in my Smart Investing Daily article from mid-January.

We started tracking JJG and DBA on Jan. 24, and since then, they have climbed 4.49% and 3.33% respectively.

With continued unrest and predicted high grains prices for at least the next six months, these two agricultural investments may still be an opportunity for you. JJG and DBA could eventually climb 33% based on the average rise in an upside breakout from the Broadening Descending Wedge formation I highlighted in that mid-January article.

There’s still plenty of potential gains to be had from these two.

Editor’s Note: You could make 81% gains tomorrow! I was just tipped off to a massive silver discovery. The results of test drilling could be announced any day now. Get into this stock beforehand, and you could make 81% on the day of the announcement. Find out about this silver discovery.

About the Author

Sara is Managing Editor of Smart Investing Daily. As Senior Research Director and global correspondent, Sara Nunnally’s diverse resume includes studies in art history, computer science and financial research. She has appeared on news media such as Forbes on Fox, Fox News Live, and CNBC’s Squawk Box, as well as numerous radio shows around the country. Most recently, Sara co-authored a book with Sandy Franks called, Barbarians of Wealth.

As Senior Research Director, global correspondent and managing editor of Smart Investing Daily, Sara has traveled all over the world in search of the best investment opportunities to recommend to her readers, be they in developed economies like France and Italy, in emerging markets like the Czech Republic and Poland, or in frontier terrain like Vietnam and Morocco. Her unique “holistic” approach of boots-on-the-ground research has given her an edge in today’s financial marketplace as she searches for the next investment opportunities in hot sectors like alternative energy, currency markets and commodities.

With the US dollar still rising against its primary currency rivals, many expectations appear to point towards a continuation of strength heading into next week. But is this really the case?

Recent dollar gains may be attributed to a number of factors. Among them are fluctuations in risk appetite from tensions in Egypt as well as renewed debt concerns in Europe; positive data out of the American economy; shrinking oil prices leading to cheaper transportation and industrial costs; and the rollover unwinding of USD short positions.

Technical fluctuations and cycles also appear to have been a major factor over the past week, as a number of reports have shown.

Heading into next week, however, we should expect to see three interrelated trends.

First is an expected increase in liquidity from a dizzying array of economic reports next Tuesday and Wednesday. Most of these calendar events will carry a direct impact on currency values in the major economies of Britain, the United States, Switzerland, Australia, New Zealand, and the broader euro zone.

Secondly, market uncertainty will likely rise next week. This is due to the aforementioned multitude of calendar events which will only give cause for an increased level of confusion about the direction of various economies. Some believe that more data adds more certainty, but history has often taught us that this is not the case when it comes to global economics.

In short, more data means more points of information to hold in one’s mind when making a decision for a trade. More mental clutter often leads to a decreased ability to accurately analyze the market.

Third, the level of uncertainty, and thus risk aversion, will no doubt feed into the USD long positions opened over the last few days. This will also have the effect of driving commodity prices lower, or at least holding them steady through the middle of next week.

The only element which will create an opposing trend in the dollar’s value is if the majority of economic reports out of Britain and Europe reveal renewed strength and optimism, otherwise investors appear to be more likely to continue to hedge their portfolios with USD long bets.

Shares of Nokia (NOK) are falling today after the mobile phone giant announced a partnership with Microsoft (MSFT). The company confirmed what was widely reported yesterday, that it will use Microsofts operating system in its smartphones, as the two companies attempt to challenge the dominance of Apples (AAPL) iPhone and Googles (GOOG) Android operating system in the smartphone arena.

By Jared Levy, Editor, Smart Investing Daily, taipanpublishinggroup.com

You’re not going to find Friday’s security breach at the Nasdaq exchange as headline news in most publications. Given the seemingly more important things like the Packers winning the Super Bowl in Dallas or the inevitable spending cuts that are coming down the pike, why would we care about a person, group of people or foreign government gaining access to confidential data that could influence future stock prices or perhaps allow them access to the orders and prices themselves?

As much as I love football and want our state and federal budgets balanced, this breach and others like it deserve not only the full attention of all Americans, but serious action. The effects of these actions could be catastrophic, not only for your personal data security, but the infrastructure that holds these digital markets together.

If you thought the “flash crash” was scary, imagine someone having the ability to alter stock prices or gather inside information about an earnings report and flood the market with buy or sell orders. (Hackers did NOT gain access to price servers in this breach apparently.)

What Happened?

The NASDAQ OMX is an international stock exchange that is the primary trading exchange for over 2,800 stocks and options issues. The Nasdaq trades between 2 billion and 3 billion shares daily and is a completely electronic exchange with no trading floors. Essentially it is a complex network of computers that links brokers, market makers and investors together and allows qualified participants to enter prices and share amounts to buy or sell. Your broker acts as the portal for you to trade on the Nasdaq, only allowing you to buy or sell what you specify and can afford.

According to The Wall Street Journal and several other sources, the Nasdaq’s servers were breached on Friday. Per a nebulous written statement by Nasdaq, the hackers were able to penetrate an area of the network called the “Directors Desk,” which is a platform that’s intended to allow company boards with over 10,000 separate members to communicate by securely storing and sharing private information and files (very disturbing). Nasdaq states that no data was lost in this breach and they have removed the “spyware” from their computers.

This isn’t the first time the exchange has been hacked, this has happened several times this year already and, in fact, there have been reports of penetration into their servers going all the way back to the 1990s.

According to industry experts, even though we have not seen anything catastrophic yet, professional hackers will often go on many reconnaissance missions, gathering data and planning a large attack or information dump later on. According to SecurityNewsDaily.com, the cloud-based platform that was hacked holds company data, recordings from virtual board meetings and even details about the 10,000-plus board members that use it. This data could potentially be used to defraud the members themselves, or gain illegal insight into a company’s health.

Jeffery Carr, who consults with U.S. and allied governments on cyber warfare, offered even further details on his blog concerning the events at the Nasdaq. I don’t know about you, but this scares me to death.

Was it a coincidence that the Nasdaq wasn’t sending out quotes on any of their indexes on Friday morning? Perhaps, but as an investor, there are a couple small things you should know and might want to do, just in case there is a major data loss, error or another flash crash, or even if you simply lose power or crash your personal computer.

(Investing doesn’t have to be complicated. Sign up for Smart Investing Daily and let me and my fellow editor Sara Nunnally simplify the stock market for you with our easy-to-understand investment articles.)

Steps to Protect Yourself

• Write down (on paper) all important numbers. This should include your broker’s phone and account numbers, addresses, any and all pertinent information that allows you to get ahold of your broker and identify yourself in the event of an emergency.
• Record your investment holdings including symbol, purchase date, amount of shares or contracts, and approximate dollar values at monthly intervals. You can even take a screen shot of your broker’s screen and print it.

The good news is that there are companies that record stock ownership and transfers. Registrars and transfer agents ensure that each share of stock in a public company is accounted for, although they have no control over price.

• Watch your stop-losses — When the flash crash occurred, stop-losses not only added to the acceleration of the drops in price, but also locked in losses for investors who would have been profitable the very next day when the market recovered. Of course, many of the trades that occurred that day were “busted,” which means they “didn’t count.” But there is no reason to take a chance. If you are a longer-term trader, use caution when entering stop-loss orders. Try either a stop limit order or simply write down a price at which you want to get out, and when the stock gets there, enter your order manually.
• Don’t give your information to anyone online, not even your full name unless you are on a trusted site and know whom you are sending it to. Be aware of “phishing” scams, which are pop-ups you may see on your computer screen asking you for data or passwords. My rule of thumb is that if I didn’t normally have to give this information, there might be something wrong. Pick up the phone and contact the company that is asking for this data to double check if you’re suspicious.
• The Nasdaq doesn’t actually know who you are. When you enter an order, let’s say to buy 100 shares of Apple Inc. (AAPL:NASDAQ) for $300 each, your broker first verifies that you have the money in your account and then allows the order to pass through their gates and their clearinghouse’s gates to the Nasdaq system without your personal information. The order is sent with a “trade ID” only, so all the Nasdaq would see is an order to buy 100 shares for $300 per share. If you are filled, your broker (and their clearinghouse if separate) simply matches up the orders and deducts or adds any cash or stock positions.

*This was confirmed by a source at Penson Financial, which serves as a clearinghouse for many brokerages around the world.

While these breaches are extremely frightening, there are several layers in place to protect your information and even our trading systems. I believe the worst outcome of these breaches is not your personal data safety, but either confidential company information in the wrong hands being used to manipulate markets, or worse, the sabotage/overload of the pricing systems causing another flash crash of epic proportions using errant erroneous trades and prices.

For now, keep your records in order and your personal data close. Risks like this exist all around us in just about everything we do; unfortunately it’s one of the “costs” of doing business in the information age and over the Internet.

Editor’s Note: This secret Wall Street cheat sheet means big payoff for you… Time to get even! Wall Street thieves robbed America blind during the Crash, and now these billionaire hedge fund managers are forced to fess up. Congressional hearings expose their crimes. You have to read why in this exclusive investment report.

About the Author

Jared Levy is Co-Editor of Smart Investing Daily, a free e-letter dedicated to guiding investors through the world of finance in order to make smart investing decisions. His passion is teaching the public how to successfully trade and invest while keeping risk low.

Jared has spent the past 15 years of his career in the finance and options industry, working as a retail money manager, a floor specialist for Fortune 1000 companies, and most recently a senior derivatives strategist. He was one of the Philadelphia Stock Exchange’s youngest-ever members to become a market maker on three major U.S. exchanges.

He has been featured in several industry publications and won an Emmy for his daily video “Trader Cast.” Jared serves as a CNBC Fast Money contributor and has appeared on Bloomberg, Fox Business, CNN Radio, Wall Street Journal radio and is regularly quoted by Reuters, The Wall Street Journal and Yahoo! Finance, among other publications.

By CountingPips.com

The United States trade deficit increased by slightly more than expected in December as a result of increased import levels, according to a release by the Commerce Department today. The U.S. trade deficit rose by $2.3 billion in December to a total shortfall of $40.6 billion following a revised deficit of $38.3 billion in November.

The trade data just surpassed market forecasts that were expecting a deficit of approximately $40.4 billion for the month.

The increased deficit was the result of a bigger increase in imports compared to the rise in exports for the month. Imports of goods and services rose to a total of $203.5 billion compared with a total of $198.5 billion in November for an increase of $5.1 billion.

The U.S. exported a total of $163.0 billion worth of goods and services in December which was an increase of $2.8 billion from November’s total.

The politically sensitive U.S. trade deficit with China declined in December with a $20.7 billion shortfall following a deficit of $25.6 billion in November. Other notable U.S. trade deficits were with OPEC at $8.3 billion, the European Union at $6.6 billion, Mexico at $4.7 billion and Japan at $5.9 billion.

The U.S. trade surpluses with other countries for December included Hong Kong at $2.2 billion, Singapore at $1.3 billion, Australia at $1.2 billion and Egypt at $0.7 billion.

U.S. Dollar mixed in forex trading

The U.S. dollar has been mixed in morning trading in the forex markets today while the American stock markets have opened slightly lower. The dollar has gained ground versus the euro, British pound sterling, Swiss franc and the New Zealand dollar while declining against the Australian dollar, Japanese yen and the Canadian dollar, according to currency data by Oanda.

The U.S. stock markets, meanwhile, are slightly down today with the Dow Jones following by approximately 14 points, the Nasdaq down by approximately 4 points and the S&P 500 lower by just around 2 points at time of writing.

Oil has traded lower by $0.38 to $86.35 per barrel while gold futures have edged higher by $1.90 to the $1363.80 per ounce level.

By Dan Eduard

Market volatility was low at the beginning of this week, as a slow news cycle failed to generate significant amounts of trading activity. That all changed on Wednesday, when a speech from Fed Chairman Ben Bernanke caused investors to overwhelmingly short their USD positions. Bernanke sounded a pessimistic note with respect to the US employment sector and budget deficits. As a result of the speech, the EUR/USD took off, reaching as high as 1.3742 by the end of the day. The USD/JPY dropped close to 30 pips, while the GBP/USD moved up close to 80.

The markets shifted course on Thursday, following the release of the latest US Unemployment Claims figure. The figure came in at 383K, well below initial estimates and represented a 2 1/2 year low in new jobless claims. Investors reverted back to the greenback as a result, and the currency moved up against virtually all of its main counterparts. The EUR/USD dropped close to 100 pips as a result, while the USD/JPY went as high as 83.35 before the end of the day.

The USD remained bullish to close out the week, as the combination of renewed confidence in the US economic recovery continued to grow, while fresh concerns regarding European debt drove investors to the greenback. Whether or not the greenback can maintain this trend into next week is yet to be seen. Next Wednesday in particular looks to be a particularly big day for US fundamental news. Positive results from any of the more significant economic releases are likely to generate more momentum for the dollar.

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 GCI Forex Research

Fundamental Outlook at 0800 GMT (EDT + 0400)

USD

The dollar held firm overnight on a combination of elevated yields and caution in equity markets. EURUSD traded in a range of 1.3552-1.3621 and USDJPY 83.21-83.52. A Japanese holiday limited volumes somewhat, though given yesterday’s jitters in Eurozone sovereign bond markets and ongoing geopolitical tension in the Middle East, we would expect the dollar to continue enjoying underlying support, especially with data surprises to the upside in the US. Yesterday’s initial jobless claims plunged to 383k, the lowest since July 2008. A combination of unusually bad winter weather and normal volatility around the holidays has added extra volatility to the claims readings recently, although the trend is downward is consistent with an improving labor market, which could bolster the case for some payback in the next Bureau of Labor Statistics release. Better claims data pushed yields higher while the new 30y auction went roughly as expected.
Fed Chairman Bernanke and other officials are not worried about higher yields because they say they reflect expectations for growth and reactions to future data prints should help confirm whether market participants are fully onboard with the US recovery. Meanwhile, Fed Governor Warsh, one of the more outspoken governors against the Fed’s asset purchase program announced his resignation, effective March 31. We are against consensus for the February preliminary University of Michigan confidence index forecast as we are looking for a decrease to 71.5. But a print in line with our estimate would still be the fourth consecutive month of an above-70 figure, so we would not expect a low figure to necessarily weigh too much on the dollar. There are no major releases out of Europe but investors will continue to monitor volatility in Eurozone periphery spreads.
EUR

Eurozone peripheral bond yields marched higher, prompting reports of central bank bond purchasing to stem the rise. Portuguese yields seemed to be the larger movers, which prompted Portuguese officials to say the higher yields represent a speculative attack on the euro and that Europe is preparing a response to the situation. Officials also said current yields do not correspond to the fundamentals and that the country will be able to finance itself in the debt markets. Regardless, the latest move in yields show that recent talk on Eurozone sovereign solutions are still not viewed as a comprehensive solution, which puts more focus on the upcoming March 11 EU summit. Spanish Prime Minister Zapatero even went so far as to say the summit would be “transcendental”.
That said, we still remain negative on the euro as potential solutions could disappoint expectations and as borrowing costs represent a significant obstacle. German CPI came in at 2.0%, slightly above market expectations.
GBP

PPI figures are due in the UK today and the market is looking for softer growth in input costs while output price levels are expected to register 0.3%m/m gains. Core output PPI is also expected to hit 3.0%y/y and the BoE will be watching nervously for signs of second-round effects in general price levels.
The BoE left policy unchanged as expected, though there was a small risk of a change given the timing of next week’s inflation report. As such no explanatory statement was issued and the focus shifts to the Feb 23 minutes.
The National Institute of Economic and Social Research said the UK economy grew +0.6% in January, largely due to the recovery of output from the impact of adverse weather at the end of last year.
AUD

RBA Governor Stevens was on the wires overnight and sounded more cautious in testimony to parliament. He noted that although China’s economy is stronger than expected, inflation is now a little lower than thought and price effects are not a serious threat to inflation. Crucially, he said that market pricing of no hikes until later in the year is “reasonable”, noting that the RBA is “ahead of the game” with policy and comfortable on the level of interest rates. AUDUSD responded negatively, trading from 1.0045 at the open to below parity.
CAD

Canadian officials are concerned that currency strength could hamper growth but a recent publication by Export Development Canada, an export credit agency, essentially says Canadian exporters have adapted their methods to a stronger Canadian dollar. So while our forecasts call for Canadian dollar weakness relative to the US dollar on the basis of an improving US backdrop, another expected trade deficit print may not be as much of a damper on growth or the loonie, should exporters have quickly adapted to sustained currency strength.

TECHNICAL OUTLOOK
USDJPY 83.68 resistance.
EURUSD NEUTRAL Break of 1.3572 has turned the model to neutral; Support zone is at 1.3509/1.3482 while resistance is at 1.3744.
USDJPY BULLISH Violation of 82.93 pressurises initial resistance 83.68, break of which would expose 83.91, support lies at 81.20.
GBPUSD BULLISH As long as support at 1.5922 holds, expect recovery towards 1.6186 ahead of 1.6279/99 zone. Near-term support is defined at 1.6010.
USDCHF BULLISH Breach of 0.9687 has exposed 0.9764 next; support at 0.9575/24 zone.
AUDUSD NEUTRAL Pressure on initial support 0.9964 builds, break of this would expose 0.9897. Initial resistance is at 1.0152.
USDCAD NEUTRAL 1.0011 and 0.9915 mark the near term directional triggers.
EURCHF BULLISH Momentum is positive; focus is on 1.3206/87 resistance zone. Support at 1.2973.
EURGBP BEARISH Focus is on initial support at 0.8420 ahead of 0.8377. Near-term resistance is at 0.8530.
EURJPY BULLISH Resistance zone is at 114.01/94. Initial support lies at 112.06.

Forex Daily Market Commentary provided by GCI Financial Ltd.

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