Coordinated Intervention To Weaken the Yen?

The Bank of Japan announced an immediate emergency meeting to begin very soon – Monday 00:00 GMT. There are expectations for new easing steps to boost the economy. But there might be more – Will we see a global coordinated intervention to weaken the yen? Yen crosses are already on the rise.

The governor of the BOJ, Masaaki Shirakawa, shortened his visit in Jackson Hole, where he met other central bankers, and returned swiftly to Japan. At 00:00 GMT, or 9:00 Japanese time, the BOJ is meeting for an emergency meeting. It happens as the week begins in Japan, and very early for JPY crosses in other places in the world:

The rather new Japanese government is showing growing vocal concern about the strength of the yen. USD/JPY recently reached fresh 15 year lows. This hurts the Japanese economy, that is based on exports.

The Japanese government, led by Naoto Kan, pushed the BOJ to take measures, and did it in  a public manner. It is also expected to declare a new stimulus program of its own, in a meeting on Tuesday.

But the BOJ doesn’t wait for Tuesday. According to expectations, the bank might enlarge its existing lending encouraging plan:

The central bank may expand a three-month 0.1 percent loan facility, increasing the supply of funds from 20 trillion yen ($230 billion) or extend the duration of loans to six months, Dow Jones reported.

Coordinated Intervention?

But there might be more under the hood. There’s talk  that the BOJ will intervene directly in the markets to weaken the yen. As we know from various examples, central bank interventions are short-lived. The Swiss National Bank lost a lot of money on its interventions.

The meeting of many central bankers from all over the world in the Jackson Hole Symposium raises the question of a coordinated effort to weaken the yen. Together with central banks in the US and Europe, a move to weaken the yen might be successful.

Similar coordinated moves in the past had significant success. The US might support this move also as a maneuver against China, which keeps it’s currency, the yuan, weak, angering the US.

In the meantime, the Japanese yen weakens on thin trading. USD/JPY rose to 85.70, GBP/JPY rose above 133, EUR/JPY touched 109.25 and CHF/JPY reached 83.40.

This is a very early hour in the week – only the Sydney session is open at the time of writing. The Tokyo session will open soon. Later, there’s a bank holiday in Britain.

Thin trading is a good timing for an intervention.

The BOJ will hold a press conference at 5:30 GMT, and we’ll get to know what’s going on. An announcement of further easing steps is likely to weaken the yen only marginally. A coordinated intervention will send all JPY crosses to the skies.

EUR/USD Weekly Technical Forecast (Aug 30-Sep 03)

The calendar is packed for the Euro in the upcoming week, with the rate decision being the highlight. Here’s an outlook for European events and an updated technical analysis for the ranging EUR/USD.

EUR/USD daily chart with support and resistance lines marked. Click to enlarge:



Echoes from the downwards revision of US GDP and also from Bernanke’s speech in Jackson Hole will still move the pair at the beginning of the week. Later, the news will start shaping trading. Let’s start:

1. German Unemployment Change: Published on Tuesday at 7:55 GMT. The German economy enjoyed outstanding performance in recent months, and this is well reflected in the change in unemployed people. It rose only twice in the past year, and almost always dropped more than expected. Also now, a drop of 19K is predicted, similar to last month’s 20K drop.


2. Unemployment Rate: Published on Tuesday at 9:00 GMT. In sharp contrast to Germany, most of the other countries in the Euro zone are lagging behind. The European unemployment rate is around 10% for many months, and is expected to remain so now as well, weakening the Euro.


3. CPI Flash Estimate: Published on Tuesday at 9:00 GMT. Slightly overshadowed by the unemployment rate, this initial release of inflation for August is expected to show that the annual rate of inflation in the Euro zone eased from 1.7% to 1.6%. Only a rise above 2% will spark talks about a possible rate hike somewhere in the future.


4. German Retail Sales: Published on Wednesday at 6:00 GMT.  After a superb rise of 3% two months ago, this consumer figure corrected with a 0.3% drop last month. A rise of 0.6% is expected now, showing that German consumers are on the move.


5. Final Manufacturing PMI: Published on Wednesday at 8:00 GMT. According to the initial release, manufacturing slowed from 56.7 to 55 points last month, but still at a healthy pace. This is likely to be confirmed now.


6. Revised GDP: Published on Thursday at 9:00 GMT. The great growth rate of 1% in the Euro zone will probably be confirmed now. Germany, the locomotive of the zone, already confirmed its stellar 2.2% growth in Q2.


7. Rate decision: Published on Thursday at 11:45 GMT. Jean-Claude Trichet faces impressing (though uneven) growth in the Euro-zone in Q2, and also steadily rising inflation. On the other hand, the prospects for the near future aren’t too good, especially with remainders of the debt crisis still curbing growth. He is likely to leave the Minimum Bid Rate on 1% for another month. The focus will be on the tone of his words in the press conference that he is due to hold 45 minutes later. He’ll probably express concern over the situation in the US, and commit himself to maintaining the recovery – meaning willingness to more easing steps, though no immediate actions.


8. Final Services PMI: Published on Friday at 8:00 GMT. Europe’s services sector remained almost unchanged according to the initial release  - an insignificant drop from 55.8 to 55.6 points. This will probably be confirmed now. Only a drop under 50 will be meaningful.


9. Retail Sales: Published on Friday at 9:00 GMT. Though published after the German figure was already released, this publication still tends to rock the Euro. The volume of sales stalled last month, and is now expected to resume the rises. A 0.3% rise is expected.

EUR/USD Technical Analysis

The Euro started the week in a weak tone, dropping to the 1.2610 support line mentioned in last week’s outlook. It later gradually recovered, managed to cross the 1.2722 line peaked just under 1.2780 before closing at 1.2760. All in all, the Euro rose 60 pips after a tight week of range trading.

The current range is between the important 1.2722 support line and the minor 1.2780 line that capped the pair in the past week. Higher, the 1.2930 that was a stubborn resistance line in recent weeks provides further resistance.

Above, the round number of 1.30 is the next line of resistance, mostly due to its psychological role. Higher, the 1.3110 line served as a line of resistance and later as support during July, and is now a strong barrier. Even higher, 1.3267 is the next resistance line, working as a support line many times in the past.

It’s also important to note the long term uptrend line which switched from support to resistance two weeks ago. It will stand between 1.2950 and 1.30 during the week. A break above this diagonal line will be a bullish sign.

Looking down below 1.2722, the next line of resistance is the 1.2610 line which capped the pair in July and worked just now as a strong line of support.

Lower, 1.2460 held the pair when it was trading lower, in May and in June. Below, the “Lehman levels” – lows of 2008, continue to provide minor support.

A strong line of support appears at 1.2150, which worked as a very strong line of support, and briefly as resistance. Lower, the round number of 1.20 is the next line of support, before the year-to-date low of 1.1876.

I remain bearish on EUR/USD.

The gloomy mood in the markets is still strong, and a double dip recession in the US can hurt the Euro. Also the Euro zone is vulnerable to the austerity measures taken by the member countries. After range trading in these summer days, the new month’s figures, with the Non-Farm Payrolls, can provide significant price action.

GBP/USD Weekly Technical Forecast (Aug 30-Sep 03)

The upcoming week is packed with events, with PMI figures in the limelight. Here’s an outlook for the British events, and an updated technical analysis for GBP/USD.

GBP/USD daily chart with support and resistance lines marked. Click to enlarge:



The Pound dived lower in the past week, but managed to recover, with a boost coming from an upwards revision of GDP for the second quarter. Will it continue higher?

1. Halifax HPI: Publication time unknown at the moment. This house price index, is one of the most accurate available, as it’s based on internal data from HBOS, one of the biggest banks in the UK. According to the bank, a three month slump in house prices stopped last month with a neat 0.6% rise. A smaller rise is expected this time.


2. GfK Consumer Confidence: Published on Monday at 23:00 GMT. 2000 consumers are surveyed by GfK for this important survey. After reaching minus 14 points, confidence deteriorated steadily back to minus 22, the worst in 11 months. Another dip is expected now, with the number dropping to minus 23.


3. Net Lending to Individuals: Published on Tuesday at 8:30 GMT. Borrowing by individuals is necessary to boost the economy. It unexpectedly dropped last month to 600 million, about half of early expectations, disappointing the Pound. A rise to 700 billion is predicted now.


4. Manufacturing PMI: Published on Wednesday at 8:30 GMT. This survey of 600 purchasing managers always rocks the Pound. In recent months, it has been quite strong, going hand in hand with the UK’s economic strength. It’s now expected to dip from 57.3 to 57.1 points. Any result will rock the Pound.


5. Nationwide HPI: Published on Thursday at 6:00 GMT. This figure was delayed from last week. The Nationwide House Prices are considered to be an accurate measure of house prices, even though they’re not the first to publish them. In the past two months, prices disappointed and even unexpectedly fell by 0.5% last month. As other indicators show the same trend, another fall is expected now – by 0.3%.


6. Construction PMI: Published on Thursday at 8:30 GMT. The construction sector took more time in recovering from the recession, but when it did, this survey of purchasing managers showed very strong results, rising quickly to 58 points. Last month it unexpectedly dropped to 54.1 points, and is now expected to stay at a similar level.


7. Paul Tucker talks: Starts speaking on Friday at 00:45 GMT, in a conference in Seoul. The BOE Deputy Governor is an influential member of the MPC, and often joins the BoE governor on testimonies in the parliament. He might contribute to the debate about British inflation and the chances of a double dip recession, that currently seems unlikely in Britain.


8. Services PMI: Published on Friday at 8:30 GMT. The all-important services sector closes the PMI releases for this week. In the past two months, the score came lower than predicted, but managed to remain above the critical 50 point mark, indicating economic expansion. It’s now expected to remain at similar levels to last month’s number – at 53.1 points.

GBP/USD Technical Analysis

The British Pound began the week with a significant downfall, first losing the 1.5520 line and quite quickly the 1.5470 line. Both were mentioned in last week’s outlook. The 1.5470 line turned into tough resistance. This was eventually broken, and the pair closed just above 1.5520, at 1.5536 – Another week of retreat for the Pound.

GBP/USD ranges between 1.5520, which served as tough resistance in April and as support line in February, to 1.5720, which supported the Pound back in 2009. It’s less strong than in previous weeks.

Looking up, 1.5833, which provided support when the year began and later worked as resistance, is the next line. Higher, the psychological round number of 1.60 proved to be a tough barrier in recent weeks and is a strong resistance line.

Higher, 1.6080 is the next minor resistance line, after working as support in January. It’s followed by 1.6270, but that’s quite far at the moment.

Looking down below 1.5520, the next line of support is quite close – 1.5470 – it capped the pair just this week. 1.5350 served as pivotal line in March and April and this week’s attempt to break below it makes it strong again.

Below, 1.5230 was a stubborn resistance line in July and is now a major support line. Lower, 1.5120 will provide further support.

I remain bearish on the Pound.

Softer inflation, a new hesitation in job growth,makes the Pound vulnerable in the face of the imminent global slowdown.

EUR/JPY Elliot Wave Weekly Forecast and Trade(Aug 30- Sep 03)

EUR/JPY – 107.65

EUR/JPY: Rebound from 112.08 to 139.26 is wave (B) and wave (C) is unfolding

The single currency has resumed recent downtrend as suggested in our previous update and although price has recovered after falling to 105.44 earlier this week, upside should be limited to 109.00/10 and bring another decline later. Break of said support would extend decline in wave iii for weakness to 104.42 (50% projection of 127.95 to 107.30 measuring from 114.74) and possibly 103.00 but price should stay well above 101.98 (61.8% projection).

The daily chart is labeled as attached, early selloff from 169.97 (July 2008) to 112.08 is wave (A) of B instead of end of entire wave B and then the rebound from there to 139.26 is wave (B), hence, wave C has commended from there with minor wave 1 ended at 119.66 and wave 2 at 127.95 and wave 3 is unfolding and may extend eventual weakness towards 104.42 (50% projection of 127.95 to 107.30 measuring from 114.74).

To recap this wave C from 139.26 is sub-divided into (a): 127.00, (b) 138.49 and wave (c) has commenced from there with a diagonal wave 1 (i: 126.95, ii: 134.37, iii: 120.70, iv: 125.24 and then wave v at 119.66). The rebound from 119.66 to 127.95 was an a-b-c wave 2 and wave 3 is taking place from 127.95 with minor wave i ended at 110.49, followed by wave ii ended at 122.29.

On the upside, only above 110.00/10 would defer and risk retracement to 111.00/10 but reckon 112.03 (previous support turned resistance) should hold, bring another decline. Only break of later resistance would suggest a temporary low has possibly been formed and risk retracement to 113.00 and possibly test of resistance at 114.19 and 114.74.

Recommendation: Sell at 109.00 for 106.00 with stop above 110.20.

To re-cap the corrective upmove from the record low of 88.93 (18 Oct 2000), the wave A from there is subdivided as: 1:88.93-113.72, 2:99.88 (1 Jun 2001), 3:140.91 (30 May 2003), 4:124.17 (10 Nov 2003) and 5 ended at record high of 169.97 (21 Jul 2008). The brief but sharp selloff to 112.08 is viewed as a-b-c x a-b-c wave (A) of B. The subsequent rebound to 139.26 is (B) of B and (C) of (B) is underway which should be limited to 100.00.



The long-term downtrend started from calculated price of 359.26 (Dec 1979). The sharp fall from there to 226.60 (Aug 1981) with impulsive structure is labeled as wave I and wave II was capped at 256.59 (Nov 1982). Wave III decline was contained at 140.58 (Feb 1989), the subsequent rebound to 198.59 (Aug 1990) is seen as wave IV, the subsequent 5-wavers decline from there finished at 88.93 (18 Oct 2000). The strong rebound from there to 169.97 (21 Jul 2008) is tentatively viewed as wave A and wave B selloff was followed and may extend to 105.00. Our alternate count is that entire wave IV correction already ended at 169.97, hence fall to 112.08 would be treated as the wave 1 of V.

AUD/USD Weekly Technical Forecast (Aug 30-Sep 03)

A very busy week expects Aussie traders, with GDP and 12 other events to rock the currency, that still shakes by the election results. Here’s an outlook for the Australian events and an updated technical analysis for AUD/USD.

AUD/USD daily chart with support and resistance lines marked. Click to enlarge:



The elections ended in a hung parliament. This political uncertainty, together with weak private capital expenditure, hurt the Australian dollar. The echoes from the elections – whether a government is formed or new elections are called, will continue affecting the Aussie, alongside the many indicators, and also Bernanke’s speech in Jackson Hole. Let’s start:

1. HIA New Home Sales: Publication time unknown at the moment. The Australian Housing Association releases a rather early report on the prices of homes, but the exact timing is unknown. In the past two months, sales have dropped sharply: 6.4% and 5.1%. A small correction is expected this time in this volatile indicator.


2. Company Operating Profits: Published on Monday at 1:30 GMT. This quarterly figure has risen in the past two quarters showing that Australian corporations are enjoying the fruits of the economic situation. Following the surprising rise of 3.9% in Q1, Q2 is expected to be even better, with a 5.9% rise.


3. Guy Debelle talks: Starts speaking on Monday at 23:30 GMT. The RBA Assistant Governor is an influential member of the central bank. In his speech in Sydney, Debelle might hint about future moves regarding the interest rate that has stalled in recent months, after reaching 4.50%.


4. Retail Sales: Published on Tuesday at 1:30 GMT. This is the most important release that will be simultaneously released with three other indicators (details below). Consumer have been more careful in the past two months – retail sales rose by only 0.2% in these two months. A stronger rise in sales is expected now – 0.4%.


5. Building Approvals: Published on Tuesday at 1:30 GMT. The housing sector has been a “victim” of rate hikes. The higher costs slowed this sector significantly with three disappointing drops. Last month’s 3.3% fall will probably be followed by a more modest slide this time – 0.6%.


6. Current Account: Published on Tuesday at 1:30 GMT. On one hand, this is a late figure, released after after the more up-to-date related trade balance figure, but on the other hand it’s a more comprehensive quarterly figure also tends to shake the Aussie. The deficit has stabilized around 17 billion in the past three quarters, and is now expected to drop to only 6.3 billion, helping the Aussie.


7. Private Sector Credit: Published on Tuesday at 1:30 GMT. Credit is correlated directly with consumer spending, and in this case, complements the retail sales figure released at the same time. Lending growth rose slowly last month – 0.2%, and is now expected to accelerate to 0.3%.


8. AIG Manufacturing Index: Published on Tuesday at 23:30 GMT. The Australian Industry Group showed good growth in the manufacturing sector last month, with a rise to 54.4 points, significantly above the 50 point score that is the pivotal line between growth and contraction.


9. Chinese Manufacturing PMI: Published on Wednesday at 1:00 GMT. China is Australia’s main trade partner, and high demand in China is one of the things that helped Australia avoid a recession. Purchasing managers in China showed a slowdown in the manufacturing sector – a drop from 52.1 to 51.2 points. This time, the survey of 700 purchasing managers is expected to rise to 51.5 points. A drop under 50 (meaning contraction) will hurt the Aussie.


10. GDP: Published on Wednesday at 1:30 GMT. After a strong fourth quarter (+1.1%), Australia’s GDP disappointed in Q1 of 2010 by rising only by 0.5%. Given the strong job market and the overall health of the economy, a growth rate of 0.9% is expected now. Any result will shake the Aussie. This is the main event of the week.


11. Commodity Prices:  Published on Wednesday at 6:30 GMT. Australia’s economy is highly dependent on exports of commodities, mostly iron and gold. This year-over-year indicator showed a rise of 51% in prices. A similar figure is expected now.


12. Trade Balance: Published on Thursday at 1:30 GMT. Contrary to the wider current account indicator, this monthly balance of goods has been positive in the past three months. Australia’s surplus rose to 3.54 billion in June, and is now expected to edge down to 3.11 billion.


13. AIG Services Index: Published on Thursday at 23:30 GMT. According to AIG, the services sector is currently contracting – the score is under 50 points for three straight months. This survey of 200 companies is expected to remain around last month’s figure – 46.6.

AUD/USD Technical Analysis

After the Aussie started lower on a weekend gap, it manged to climb towards 0.90 (mentioned in last week’s outlook), but political uncertainty sent it down again, below the 0.8870 line. A late recovery sent the Aussie to close at 0.8986.

The Aussie now trades between the round psychological number of 0.90 that capped it in the past week, and 0.8870, which is now only a minor support line.

Below, 0.8710, which was a swing low a few months ago is the next line of support. It’s followed by the veteran 0.8567 support line, which began its role back in 2009.

Lower, the double bottom in July, 0.8316, serves as the next support line. Even lower, the year-to-date low of 0.8066 is the ultimate support line.

Looking up above 0.90, the next line is 0.9080 which capped the pair in July and in mid-August. Higher, 0.9135 supported the pair in April and now works as resistance.

Above, 0.9220 was also a support line in April and held the pair a few weeks ago. Even higher, 0.9327 began its role in autumn 2009 and capped the pair many times since then.

I return to being bullish on the Aussie.

The dust from the elections has settled. It seems that a government will be eventually formed. The Australian economy is doing quite well, and the influx of fresh data should support rises.

NZD/USD Weekly Technical Forecast (Aug 30-Sep 03)

4 events await kiwi traders in the upcoming week, with the business confidence being the highlight. Here’s an outlook for the events in New Zealand and an updated technical analysis for NZD/USD.

NZD/USD daily chart with support and resistance lines marked. Click to enlarge:



The kiwi saw tensed range trading in the past week and didn’t make dramatic moves. This week should provide more action, after the summer vacation is over. Let’s start:

1. Trade Balance: Published on Sunday at 22:45 GMT. New Zealand enjoyed many months of surplus in its trade balance. But after it squeezed sharply to 276 million last month, it’s now expected to turn negative – a deficit of 37 is expected in the month of July.


2. NBNZ Business Confidence: Published on Monday at 3:00 GMT. This wide survey of 1500 businesses has shown a significant decline last month, dropping from 40.2 to 27.9 points and weakening the kiwi. Another small drop is expected now.


3. Building Consents: Published on Monday at 22:45 GMT. This figure, known elsewhere as building approvals, recovered last month with a 3.5% rise after a 9.6% fall in the previous month. While this indicator is quite volatile, it’s still important for the New Zealand dollar. A drop is likely this time.


4. ANZ Commodity Prices: Published on Wednesday at 3:00 GMT. Month over month commodity prices have dropped in the past two months. New Zealand’s economy suffers from lower commodity prices, as it’s a big exporter of commodities. A small rise is expected this time.

NZD/USD Technical Analysis

During most of the week, NZD/USD traded between 0.70 and 0.71. A dip under 0.70 was short-lived, and a rise on Friday lost air towards the 0.7160 resistance line (mentioned in last week’s outlook). The kiwi finally closed at 0.7106.

The pair continues to range between 0.70, the round number that is a strong line of support, and 0.7160 which was a stubborn peak in June.

Looking down, 0.69 is the next line of support. It previously worked as a line of resistance in May, after the pair fell down sharply.

Below, 0.68, that was a swing low in mid-July and also held NZD/USD in February is the next support line. Lower, 0.6685 worked as support back in September and was a pivotal line in July. The final line for now is the year-to-date low of 0.6560.

Above 0.7160, the next resistance line is 0.72 that worked as support quite recently. Higher, 0.7325 that was an area of struggle and also a peak in May is the next line of resistance, followed by the 0.7440 region, which capped the pair when it traded higher.

I remain bearish on NZD/USD.

As the chances of double-dip recession in the US seem strong, risk aversive trading hurts the kiwi. As the last big release from New Zealand was the very disappointing rise in unemployment, the pair isn’t well positioned to weather the storm.

USD/CAD Weekly Technical Forecast (Aug 30- Sep 03)

The Canadian dollar expects another rather calm week, but with one key event to rock it – GDP. Here’s an outlook for the Canadian events and an updated technical analysis for USD/CAD, now on higher ground.

USD/CAD daily chart with support and resistance lines marked. Click to enlarge:



Weak retail sales and the growing notion of a double dip recession in Canada’s main trade partner – the US, hurt the Canadian dollar. Will it recover? Let’s start:

1. Current Account: Published on Monday at 12:30 GMT. This is a late figure in comparison in comparison with the related trade balance figure, but as its scope is wider and it’s released only per quarter, the loonie tends to shake on this release. Canada’s deficit has significantly squeezed in the past two months and reached 7.8 billion. It’s expected to widen once again to 9.8 billion.


2. RMPI:  published on Monday at 12:30 GMT. As Canada is highly dependent on export of commodities, the Raw Materials Price Index is significant and rocks the currency. A disappointing drop of 0.3% hurt the Canadian dollar last month. It’s expected to be corrected with a rise this time.


3. GDP: Published on Tuesday at 12:30 GMT. Canada’s unique monthly release of the GDP provides action for the USD/CAD more frequently. After a great first quarter, the Canadian economy slowed down in Q2 – stalling in April and only rising by 0.1% in May. The release for June, closing the second quarter and is of high importance. A 0.2% rise is expected. Only a leap back to 0.5% will boost the currency.

USD/CAD Technical Analysis

The Canadian dollar had a bad start to the week – USD/CAD broke above the 1.05 resistance line (mentioned in last week’s outlook) and challenged the 1.0680 twice. Towards the end of the week, USD/CAD dropped and closed just above the 1.05 line.

Looking up, the 1.0680 line became a stronger line of resistance after being tested twice in the past week. It was also a stubborn resistance line at the beginning of July.

Above, the 1.0750 line was the top border of long term resistance line, and also a swing high in May. Another swing high in May, the 1.0850 line, serves as the next line of resistance, after working as such back in 2009 as well.

Above, the next significant line is rather far – 1.1130, which capped the pair back in 2009. It’s quite far now.

Looking down, 1.04 is a veteran line of support and resistance, and currently works as support. Below, the 1.0280 proved to be rather strong in recent months, and is the next line of support.

Lower, the 2009 low 1t 1.02 serves as the next line of support. Lower, 1.01 capped the pair after it reached parity in April, and also was a low point a few weeks ago.

The ultimate line of support is parity – which seems far now.

I turn neutral on USD/CAD.

The Canadian economy cannot keep pushing forward as its main trade partner is still behind. Recent retail sales showed it. While the situation is still OK in Canada, more range trading seems likely at the moment.

EUR/USD Weekly Summary- Aug 29

The EUR/USD bearish pressure was paused this week. On h4 chart below we can see that price is now testing the upper line of the bearish channel. Violation to the upside of the bearish channel could be a serious threat to the bearish outlook but I still believe that only a movement above the right shoulder of the "head and shoulders" formation around 1.2930 will cancel my bearish technical outlook. We also have a rising wedge formation inside the bearish channel. A break below the rising wedge confirms the bearish continuation targeting 1.2523 - 1.2470 region.

US GDP Sharply Revised Downwards – Trading Remains Tight

The second release of GDP for the second quarter was indeed bad – a downwards revision from 2.4% to 1.6%, slightly better than a revision to 1.5%. The initial reaction was dollar positive, but this was quickly erased.

EUR/USD was down from 1.2720 (almost the resistance line) to 1.27. This drop was very limited and the pair returned upwards. The market is still awaiting Ben Bernanke’s speech in Jackson Hole. He’ll have something to relate to.

GBP/USD dropped to the support line of 1.5470 immediately after the release. AUD/USD rises towards 89 cents. USD/CAD is down just under 1.06. All have recovered in the meantime. Tension is high. As aforementioned, these moves are limited as the result was quite accurately predicted, and Bernanke’s speech at 14:00 GMT is awaited.

Earlier this week, we received another bunch of terrible American figures. The one figure that stood out was existing home sales, that plunged by 27% and shocked the markets, suggesting the US could fall alone.

Also sales of new homes dived more than expected. Durable goods orders rose by only 0.3% (exp. +2.9%) and core durable goods orders, the more important figure, dived by 3.8% A rise was predicted. The only light in the dark tunnel was a small drop in unemployment claims, although last week’s figure was revised higher.

These figures, together with others from previous weeks such as the Non-Farm Payrolls from August 6th, raised the fear of a double-dip recession in the US. Nouriel Roubini, also known as Dr. Doom, said there’s now a 40% chance of double-dip recession, something that is very rare.

With the growth rate quickly deteriorating from over 5% in Q4 2009 to over 3% in Q1 and just over 1% in Q2, a negative growth figure in Q3 cannot be ruled out, especially if employment remains so weak.

Bernanke Hints Awful US Situation. Lifting Inflation Goals?

Ben Bernanke talks about adding more stimulus steps if necessary, and mentions a surprising option of lifting inflation goals to boost the economy. While he said this step doesn’t have support in the FOMC, the fact that he even mentioned it is a big surprise. This is his subtle way of saying that the situation is dire and that drastic massive dollar printing steps are considered. More trouble in the US means a global slowdown. The fear triggered by his speech sends the dollar higher. EUR/USD fell 50 about pips to 1.2675 and then slightly recovered. Analysis of Bernanke’s speech:

As Bernanke’s words always have some mystery in them, it’ll take time until the market fully digests the meaning of his words. There are more factors to weigh in:

On the other hand, Bernanke did talk about good growth in 2011 and onwards. This is currently dismissed by the markets, but it sure serves as a serious balance to the hint about further stimulus if necessary.

In his speech, he said the central bank still has many tools. In the past he talked about three tools, and he repeated them again now. He also introduced a fourth tool:

A rather different type of policy option, which has been proposed by a number of economists, would have the Committee increase its medium-term inflation goals above levels consistent with price stability. I see no support for this option on the FOMC. Conceivably, such a step might make sense in a situation in which a prolonged period of deflation had greatly weakened the confidence of the public in the ability of the central bank to achieve price stability, so that drastic measures were required to shift expectations. Also, in such a situation, higher inflation for a time, by compensating for the prior period of deflation, could help return the price level to what was expected by people who signed long-term contracts, such as debt contracts, before the deflation began.

Yet again, in order to balance this surprising option of lifting inflation, a surprise indeed, Bernanke immediately said that this isn’t necessary and that there’s no support for such a move in the FOMC.

But he did mention it. What is the meaning of lifting inflation goals? How can the bank lift inflation – with much more quantitative easing – much more dollar printing. Is the situation so bad? Probably not yet, but mentioning this option sure is a surprise.

The last two hours of Friday’s London session are always messy, as many traders hurry to close positions before the weekend.

In addition, the market is still digesting the GDP downgrade that the US received earlier today. The second release for the second quarter showed a downside revision of the GDP from 2.4% to 1.6% (annualized). This was marginally better than expected. At first, the dollar gained against the Euro, but then these gains were erased, as the tension was mounting towards Bernanke’s words.

Euro Rising Before a New Fall?

EUR USD has taken serious damage after the Fed decision and bottomed out at a lower support level. Now, the pair is on the rise. After losing the steep uptrend channel, the direction seems down.

The Fed decision on Tuesday evening was digested on Wednesday, and the results were devastating. Fear of a global slowdown, or even a global double-dip recession sent stock markets tumbling down and forex traders flocking into “safe haven” currencies. The yen reached a fresh 15 year high against the dollar, and the dollar in tun made the highest daily gain in a long time. This first big wave is over. What now?

EUR/USD, that collapsed by over 300 pips, found support around the 1.2880 minor support line and managed to climb above 1.29. Further gains are capped by 1.30, the round number, and by 1.3114 that served as a clear line of resistance and later as a line of support.

Further on the road, 1.3267 provides further resistance. It was a support line in April, turned into a resistance line and was only temporarily breached after the disappointing US Non-Farm Payrolls.

But the direction seems down.

Technicals: Looking at the charts, we can see that the steep uptrend that characterized the pair’s trading in the past two months has been violently broken. After steep gains, this breakdown signals a sharp fall. Indeed, a steep downtrend channel is beginning to form.

If 1.2880 is convincingly broken, the next important support line for the pair appears at 1.2720. This is a rather new line. It capped the Euro’s gains during the strong rise for a comparably longer time than other lines.

Below, 1.2670 is the next line of support, followed by 1.2520 and 1.2460 – another strong line that capped the pair. Beyond this horizon there are more lines, with 1.2150 being the most important one.

Fundamentals: The FOMC Statement was a groundbreaking event. For many investors and analysts, it gave an official stamp to the worries about the US plunging into a double dip recession and taking the whole world with it. It has the same magnitude as their decision 17 months beforehand, in March 2009, when massive dollar printing was announced. The latest decision didn’t announce fresh dollar printing, but ignited deep fear.

This fear changed the paradigm once again. In the past two months, we’ve seen  ”normal” market behavior – when the US dollar weakened on weak US data. This has changed with the Fed decision – weak US data is expected to create more fear, strengthening the US dollar. Risk aversion is back. Big time.

European fundamentals aren’t too good. The debt crisis isn’t really behind us. The stress tests skipped the big issue of sovereign debt and eventually weren’t taken seriously.

We’ll get an important look at European fundamentals on Friday – GDP will be released, first for Germany. The Euro-zone’s locomotive holds high hopes of strong growth in Q2 – 1.3%. Will it live up to these expectations?

For the rest of the Euro-zone, expectations stand on a nice growth rate of 0.7%. Such growth rates haven’t been seen in a long time. Also here, a disappointment can be destructive.

Later on Friday, we get US retail sales, CPI and finally the consumer sentiment indicator from the University of Michigan. All figures are expected to be modest. Any disappointment will push EUR/USD lower, as the risk aversive trend is very strong.

Possiblities of Fed Decision

The upcoming FOMC Meeting holds high expectations for easing steps by the Federal Reserve – steps that can help stimulate the economy that has slowed down. Here are possible scenarios for this decision, and possible market reactions.

On Tuesday, August 10th, at 18:15, Ben Bernanke and his team will release the FOMC statement. I’ve already written about how Bernanke can print dollars and weaken the greenback, but as the market already prices in such steps, the impact on the market depends on the details:
Massive Dollar Spilling: The statement consists of a deep concern for a double dip recession and declares a program to buy assets in hundreds of billions of dollars. This is the worst case scenario. Showing worries might send traders away from the dollar. Spilling hundreds of billions of dollars in a new Quantitative Easing program means similar impact as in March 2009 – the dollar lost 600 pips against the Euro.  Bernanke wouldn’t want to create panic. Probability: Low.
Renewal of asset buying: The statement shows concern about the slowdown and states that the current asset buying program that was stopped in March 2010 will be temporarily resumed at a moderate scale.  Taking careful measures and carefully wording the statements is what the Fed does best. This scenario is bad for the dollar, but as the market already expects this, the dollar will slide down moderately. Probability: High
Change of wording: The statement shows concern about the slowdown, and vows to act if necessary, without any measures taken. Changing the wording of the statement without taking any steps is something that Bernanke mentioned in a recent public appearance. The market is expecting real steps to be taken, especially after the Non-Farm Payrolls, and while option won’t come as a huge surprise, not spilling dollars will boost the dollar, and erase some of the Euro’s recent gains. Probability: Medium.
No change in the statement: This means that the only dovish part in the statement is the pledge to keep interest rates low for “an extended period of time”. This “wait and see” policy, that happened so many times in the past will be a big surprise now, and will turn the recent gains of EUR USD to a case of “Buy by the rumor, sell by the fact”. The dollar will significantly rise. Probability: Low.

The chance of an optimistic statement about the economy is highly unlikely, and needless to say, the chance of a rate hike is zero. Inflation is no threat – the Federal Funds Rate will stay at a maximum rate of 0.25%.

What do think will happen?

Crosses Daily Technical Forecast (Aug-10-2010)

Daily Forecast for Crosses Tue, 10th of August, 2010

EURJPY Daily ForecastThe EURJPY attempted to push higher yesterday, but so far unable to consistently move above the minor trendline resistance and traded lower around 113.16 at the time I wrote this comment. The bias is bearish in nearest term testing 112.70 but the bullish correction scenario remains intact as long as the bullish channel hold. Break below 112.70 could trigger further downside pressure testing the lower line of the bullish channel and 112.00 - 111.50 region which could be a serious threat to the bullish correction scenario. Immediate resistance at 113.73 (current high). Consistent move above that area could resume the upside correction scenario testing 114.73 and 115.50. GBPJPY Daily Forecast The GBPJPY was indecisive yesterday, but traded lower around 135.90 at the time I write this comment. On h1 chart below we can see the upper line of the bearish channel did a good job preventing upside pressure indicating potential further downside momentum testing 134.96/50 area. On the upside, only a violation to the bearish channel and movement above 137.00 could continue the upside correction scenario re-testing 137.50/70. AUDUSD Forecast The AUDUSD made a significant technical movement today, by break below the rising wedge formation. This fact could trigger further bearish pressure at least testing 0.9040 region. Immediate resistance remains at 0.9220/30 and only break above that area could continue the bullish scenario.

EUR/USD Daily Technical Forecast (Aug-10-2010)

The EURUSD failed to continue its bullish scenario yesterday after unable to re-test 1.3340 resistance level, bottomed at 1.3215 and keep moving lower around 1.3190 at the time I wrote this comment. The bias is bearish in nearest term testing 1.3105 area but note that we are still in bullish phase. Immediate resistance at 1.3250. Another move above that area could trigger further upside pressure testing 1.3340. We are entering the tricky phase here as we have conflicting bias between short term (bearish) and medium  term (bullish). Fundamental focus will be on the FOMC statement.

GBP/USD Daily Technical Forecast (Aug-10-2010)

The GBPUSD had a bearish momentum yesterday after unable to move consistently above 1.5966, bottomed at 1.5892 and keep moving lower around 1.5820 at the time I wrote this comment. The bias is bearish in nearest term especially if price able to move consistently below 1.5815 area targeting 1.5735. We are entering the tricky phase here as we have conflicting bias between short term (bearish) and medium  term (bullish). Fundamental focus will be on FOMC statement.

USD/JPY Daily Techncail Forecast (Aug-10-2010)

The USDJPY attempted to push higher yesterday, but as you can see on my h4 chart below the minor trendline resistance did a good job so far. The bias remains neutral and we may have another upside pressure re-testing the minor trendline resistance but overall the major scenario remains bearish. Consistent move above the minor trendline resistance and 85.96 area could trigger further upside correction testing 86.50 - 87.00 area. On the downside, 85.32 and 84.82 remains the nearest bearish target before testing 83.35 region.

EUR/USD weekly Technical Forecast (Aug 9-13 2010)

After riding the Non-Farm Payrolls, a busy week expects Euro traders, with the best kept for last – GDP figures on Friday. Here’s an outlook for the European events, and an updated technical analysis for EUR/USD.

EUR/USD chart with support and resistance lines marked. Click to enlarge:



The Euro enjoyed the reports that the US central bank will take new steps to boost the economy, by printing dollars. Now, the focus returns to the European core figures. Let’s start:

1. Sentix Investor Confidence: Published on Monday at 8:30 GMT. This official European survey of 2,800 analysts and investors has significantly improved in recent months, but the output was still negative – minus 1.3 last month, meaning that the overall mood is still pessimistic. A rise to 2.4 points, a positive number will boost the Euro.


2. German Final CPI: Published on Tuesday at 6:00 GMT. After a few volatile months, Germany’s consumer prices stabilized at small changes. The initial figure of a small 0.2% rise will probably be confirmed now.


3. French Industrial Production: Published on Tuesday at 6:45 GMT. Europe’s second largest economy rebounded nicely last month, with a 1.7% growth rate. This time, a drop will probably be seen.


4. ECB Monthly Bulletin: Published on Thursday at 8:00 GMT. Following the rate decision with its optimistic sentiment, we’ll get to see what the data was based on. This release shows what data the members of the ECB saw when making their decision. This could boost the Euro.


5. Industrial Production: Published on Thursday at 9:00 GMT. This publication for the whole continent comes after Germany and France already released their own numbers. Nevertheless, the overall picture is very important. After a surprising 1% rise last month, a rise in a scale of 0.7% will probably be seen now.


6. German Prelim GDP: Published on Friday at 6:00 GMT. Germany has been the locomotive of the whole Euro zone, showing impressive industrial output and dropping unemployment. So, the positive growth rate of 0.2% seen in Q1 will probably be followed with a strong 1.3% in Q2, and might be even stronger, boosting the Euro.


7. French Prelim Non-Farm Payrolls: Published on Friday at 6:45 GMT. This quarterly release showed a small growth in French employment – 0.2% in Q1. Q2’s figure will probably be similar – 0.3%.


8. French GDP: Published on Friday at 6:45 GMT. Published 45 minutes after the German figure, this number can stabilize the Euro before the release of the figure for the whole continent. The weak growth rate of 0.1% in Q1 is likely to be followed by a slightly stronger growth rate – 0.4%, or an unchanged figure. Contraction will hurt the Euro.


9. Flash GDP: Published on Friday at 9:00 GMT. There’s a big difference between the different members of the Euro-zone. While Germany, France and Holland march forward, Italy, Spain, Portugal and Greece suffer. After three quarters of growth, there’s a big danger of seeing new contraction – a double dip recession. But, expectations are very high – a growth rate of 0.7%. This figure will rock the Euro and other currencies as well.

EUR/USD Technical Analysis

At the beginning of the week, EUR/USD made an initial breakout above 1.3114. It then traded between this line, that turned into a strong support line, to the next barrier, 1.3267. On Friday, it leaned on the channel support line, which stood on 1.3160 at that time, before jumping higher. From the peak of 1.3333 it managed to settle at 1.3280, a weekly gain of 220 pips – a sixth consecutive week of gains.

Some lines were added on last week’s outlook. The pair currently ranges between 1.3267, the line it broke on the Non-Farm Payrolls, and 1.3435, the next barrier, which was a strong support line in February.

Higher, 1.3545 serves as the next line of resistance after providing support for the pair in March. 1.37 is the next line of resistance, working as in April, and it’s followed by 1.3850 which is a strong and clear line of both support and resistance.

Looking down, 1.3114 which was the place where the pair collapsed from in May, is now a strong support line. Also in the past week, it turned from a clear resistance line to a clear line of support.

Lower, 1.3028 had a minor role in the recent Euro rally. It’s followed by 1.2880, which was a support line in 2009 and then by 1.2722 which held the pair temporarily in July. There are many lines below, but they’re too far now.

It’s also important to notice the steep uptrend channel, also marked on the graph. EUR/USD is currently in the middle of this uptrend channel, far enough from falling.

I remain Bullish on EUR/USD.

US weakness, as seen in the Non-Farm Payrolls, continues to fuel EUR/USD. It might get a fresh boost from the new dollar printing schemes by the Federal Reserve, but could suffer a disappointment from the European GDP, as expectations are high.

GBP/USD Weekly Technical Forecast (Aug 9-13 2010)

Employment data and King’s report about inflation are the limelight of this week’s events. Here’s an outlook for the events that will rock the Pound, and an updated technical analysis for GBP/USD.

GBP/USD chart with support and resistance lines marked. Click to enlarge:



The British Pound made another nice week of rises. Will this continue? It seems that more serious moves about the interest rate are necessary. We could get them this week. Let’s start:

1. BRC Retail Sales Monitor: Published on Monday at 23:00 GMT (midnight UK). This unofficial retail sales release shows that consumers bought more in the past two months. While this figure is not as wide as the official number, it has a strong impact. A rise in a smaller scale is expected now.


2. RICS House Price Balance: Published on Monday at 23:00 GMT. The Royal Institution of Chartered Surveyors has shown that the real estate market is cooling again, with less regions reporting an increase in prices. From a peak of 35%, the figure dropped to 9% and will probably drop once again to 5%.


3. Trade Balance: Published on Tuesday at 8:30 GMT. Britain’s deficit rose to 8.1 billion last month, the highest level in 17 months, hurting the Pound, as it happened also beforehand. This deficit will probably squeeze now to around 7.7 billion.


4. CB Leading Index: Published on Tuesday at 9:00 GMT. The growth rate in this composite index dropped from over 1% to 0.3% last month, the lowest in a year. This time, the composite index built of 7 indicators will probably rise by more than 0.5%.


5. Nationwide Consumer Confidence: Published on Tuesday at 23:00 GMT – delayed from last week. This survey of 1000 consumers is “over the hill”, dropping from 81 to 63 points. Another drop is expected now to 60 points. Note that in this case, the delay weakens the impact.


6. Employment data: Published on Wednesday at 8:30 GMT. Britain enjoyed a significant drop in the number of people claiming unemployment benefits in the past few months, exceeding expectations (Claimant Count Change). The drop of almost 21K last month will probably be followed by another drop of 17.9K this time, in the month of July. The unemployment rate for June will probably remain unchanged at 7.8% in June. Another drop will boost the Pound. This figure is accompanied by the Average Earnings Index, which will probably rise in a rate lower than last month’s 2.7% rise.


7. BOE Inflation Report: Published on Wednesday at 9:30 GMT. While cable traders still analyze the employment data, Mervyn King, head of the BoE, will present the inflation report in a press conference. It will be very interesting to see how King relates to the rising inflation, after finally acknowledging its risks. Will we see hints of an upcoming rate?

GBP/USD Technical Analysis

The Pound began the week with a struggle around the minor resistance line of 1.5720. As it made an upwards breakout, it cleared 1.5833 quite easily. Then, 1.5833 turned into a support line, as the pair traded between 1.5833 and 1.60 (a new line that didn’t appear on last week’s outlook.), before closing at 1.5939.

The round number of 1.60 is the immediate level of resistance. It’s followed by 1.6080 which was a support line in January and now works as resistance. Higher, 1.6270 last worked as a resistance line in January and beforehand as a support line.

The peak at 1.6450 works as the next minor line of resistance, and it’s followed by 1.6720, which capped the pair several times at the end of 2009.

Looking down, 1.5833 turns into a strong support line. It’s followed by the minor line of 1.5720 which was a support line in 2009 and then by 1.5520, which capped the pair in April and worked as support in February.

Below, 1.5470 is very close, holding the pair a few weeks ago. 1.5350 was a recent resistance line, and now serves as a line of support. It’s followed by 1.5230 which was a stubborn line at the beginning of July.

I remain bullish on GBP/USD.

Fresh employment data and Mervyn King’s talk about inflation can provide the pair with new strength to rise, after clearing the strong barriers.

AUD/USD Weekly Technical Forecast (Aug 9-13 2010)

The release of employment data is the main event for the rising Aussie. Here’s an outlook for the Australian events, and an updated technical analysis for AUD/USD.

AUD/USD chart with support and resistance lines marked. Click to enlarge:



Glenn Stevens left the interest rate unchanged at 4.50%, exactly as expected. The Aussie enjoyed other figures and US weakness to rise. Will this continue? It now depends on jobs. Let’s start:

1. ANZ Job Advertisements: Published on Monday at 1:30 GMT. Delayed from last week. This unofficial employment gauge serves as warm up for the official job figures due 9 days later. The amount of jobs advertised in the media made a nice rise of 2.7%, going hand in hand with the improvement seen in the official figures. Another rise is expected this time.


2. Home Loans: Published on Monday at 1:30 GMT. After a few months of drops in loans – the outcome of the rate hikes, Australians took more mortgages last month. After rising by 1.9% last months, loans are expected to drop by 2.1% this time. Note that the ANZ job advertisements slightly overshadows this release.


3. NAB Business Confidence: Published on Tuesday at 1:30 GMT. National Bank Australia surveys 350 businesses for this important gauge. After peaking at 19 points, this indicator dropped gradually to 4 points last month, still positive – meaning economic improvement. It’s expected to rise now.


4. Westpac Consumer Sentiment: Published on Wednesday at 00:30 GMT. This bank surveys consumers – 1200 of them. After three months of drops, consumers’ mood became optimistic once again, with confidence leaping by 11.1% last month. A much smaller rise will probably be seen now.


5. MI Inflation Expectations: Published on Thursday at 1:00 GMT. Melbourne Institute fills in for the government, that published inflation data only once a quarter. Inflation expectations dropped to 3.3% last month – a drop that goes hand in hand with the low CPI. This time, inflation isn’t expected to continue dropping. A rise above 4% will boost the Aussie.


6. Employment data: Published on Thursday at 1:30 GMT. Australia enjoyed 4 excellent months of growth in jobs (employment change), exceeding expectations each time. This was accompanied by a drop in the unemployment rate, to 5.1%. This has been one of the main drivers of the currency. Good figures are expected again – another gain of 20,100 jobs and an unchanged unemployment rate, remaining low. These should boost the Aussie.

AUD/USD Technical Analysis

The Aussie began the week with a storm, jumping above the 0.9070 it struggled with in the previous week. It then traded in a tight range between 0.9070 to 0.9135, and it eventually broke this strong barrier as well. After touching the next resistance line of 0.9220 it closed lower, at 0.9177.

Some lines were modified since last week’s outlook. The Aussie is range bound between 0.9220, which was a support line in April, and 0.9135 which was a support line in May.

Looking down, 0.9070 now turns into a support line, after capping the pair recently. Below, the round number of 0.90 is the next support line – it was also a swing low in March.

Lower, 0.8870 was a stubborn resistance line in June and in July and now works as strong support. There are many more lines below, but they’re too far at the moment.

Above 0.9220, the next line one of the most persistent lines – 0.9327, which first capped the pair in October 2009, and continued being tested many times afterwards.

Higher, 0.9360 was a peak in April and works as a minor resistance line. The 2009 high of 0.94 is the next line of resistance, and it’s followed by 0.95 which was an important line in 2008.

I remain bullish on the Aussie.

Australia continues to enjoy a surplus in its trade balance, a high interest rate, and it should receive a boost from job data, which tends to exceed expectations.

NZD/USD Weekly Technical Forecast (Aug 9-13 2010)

Retail sales and other figures will shape the direction of the kiwi in the upcoming week. Here’s an outlook for the events that will move the New Zealand dollar, and an updated technical analysis for NZD/USD.

NZD/USD chart with support and resistance lines marked. Click to enlarge:



The kiwi was hurt by the disappointing employment figures, that showed a worrying leap of the unemployment rate to 6.8%. This erased some of the kiwi’s gains. Will we see positive numbers this time? Let’s start:

1. Business NZ Manufacturing Index: Published on Wednesday at 22:30 GMT. This survey of manufacturers is very similar to purchasing managers’ indices in other countries. Since last September, this figure was positive – above 50 points. From 56.2 points last month, the index is expected to edge up to new highs.


2. FPI: Published on Wednesday at 22:45 GMT. New Zealand is a huge exported of food, making it dependent on prices. The Food Price Index rose by 1.3% last month, after two months of drops. It’s expected to continue rising now.


3. Retail Sales: Published on Thursday at 22:45 GMT. This important consumer figure always shakes the kiwi. Retail sales rose by 0.4% and are expected to rise by the same scale now. Core retail sales caused worries last month when the drop by 0.2%, and are now expected to rise by 0.6% each.

NZD/USD Technical Analysis

The kiwi managed to rise above 0.7325 which it flirted with in the previous week but struggled to hold on to it. Employment data in New Zealand sent it down in the middle of the week, before American employment data on Friday helped it close at 0.7330, just above this resistance line.

Note that some lines were modified since last week’s outlook. If 0.7325 holds this time, the road is open towards the next line of resistance – 0.7440 – the stubborn top at the beginning of the week.

Higher, November’s peak of 0.7523 provides the next resistance line, and it’s followed by 0.7634, a peak in October.

The next line of resistance comes from the era before the global crisis – July 2008. 0.7760 was a resistance line back then, and was a support line beforehand.

Looking down below 0.7325, the round number of 0.72 provides strong support for the kiwi. The next support line is quite close – 0.7160 which capped the pair in June.

The next round number of 0.70 serves as further support. It’s followed by 0.6910 which capped the pair at the beginning of the year.

I turn neutral on NZD/USD.

The employment figures were very disappointing and will probably cause pauses in raising the rates. On the other hand, US weakness can support the kiwi.

Demo Trading Will Make You Successful?… Guess Again

Guest post from visionsofaffluence.com

Demo trading. We are all familiar with it. We have all heard the advice of the experts that tell you that you should demo trade first in order to learn how to trade. Indeed demo trading is thought by many to be the path to trading success because by allowing people to trade without risking any money gives them the chance to learn how to trade without the fear of losing money. This lack of risk however is what makes demo trading ineffective  at creating successful traders, because without the risk of losing money you will never be able to deal with the emotions that cripple so many traders.

Now I’m not saying that you shouldn’t demo trade at all, but if you think that you are going to spend some time demo trading and then be able to go live and start making profits then you have another thing coming. You see trading in a simulated environment without any risk of loss will not help your trading. In order to become a successful trader you are going to have to master you emotions and get over the psychological handicaps that plague most new traders. There is no way you can do this trading a demo account because you won’t have any real money at risk and therefore you won’t be able to deal with the psychological aspect of trading.

In order to become a successful trader you are going to have to learn how you deal with risk when there is real money on the line. In a demo account you aren’t risking anything so that trading amounts to little more than a videogame. It’s a simulation that will teach you the mechanics of trading but it will not prepare you for the many psychological pitfalls that will await you once you go live. I have seen many traders make a killing in a demo account but once it comes to real money they fall apart. So if your trading a demo account and think that you are going to go live and be a trading superstar then you are in for a rude awakening. Once again I’m not saying that you shouldn’t demo trade at all just that you should think of it as orientation and that class doesn’t begin until you open your first trade with real money on the line.

EUR/USD Rises on NFP, But Gains Could Be Capped

US Non-Farm Payrolls dropped by 131K, double the median expectations. This result is very disappointing. EUR/USD leaped from 1.3170 before the release to 1.3220 immediately afterwards. Note that the private sector, which is in the limelight added 71,000 jobs, so the Euro might not have the strength needed to break higher.

The unemployment rate remained unchanged at 9.5%, slightly better than a rise to 9.6% that was expected. But this isn’t important:

What is important is that the private sector gained jobs – 71,000. This is a better report than the ADP number (48K), although slightly worse than expected (90K) and it could ease the fall of the dollar, despite the terrible headline figure. So, 1.3267 – the peak at the beginning of the week which is also an important resistance line, could hold.

Update: EUR/USD made the break higher but stayed close to the resistance line – 1.3267.

Earlier this week, the ADP Non-Farm Payrolls report was slightly better than expected. It showed a gain of 48,000 jobs in the private sector. This created hope for a better result in the official Non-Farm Payrolls, especially as the government’s census in May still has an impact on the headline number. As written in the NFP preview, the private sector part of the NFP was in the limelight, making also the ADP report more important.

The US dollar lost ground up to Wednesday’s ADP report, the dollar lost ground, and then it stabilized. On the other hand, Thursday’s weekly jobless claims report was disappointing – it rose to 479K, just below the top border of a range that characterizes this figure in recent months. But this didn’t have too much impact on the greenback – tension remained high and trading became quite tight before the release.

EUR/USD got close to the bottom border of the uptrend channel, but managed to stay away before the release, and even escape it as the New York session opened at 12:00 GMT. As aforementioned, it later jumped.

EUR/USD Technicals

A break above 1.3267 will open the road to 1.3392, the uptrend resistance (currently at this zone), and then to the important 1.3435 line, which was a support line in the past.

A drop will send the pair to support around 1.3160, which is the uptrend support line at the moment and further below to 1.3114 – which turned from a strong line of resistance to a strong line of support this week.

Other Currencies

The Canadian dollar suffered from losses against the greenback, due to its own employment data. Canada lost jobs in July – this disappointing outcome sent USD/CAD above 1.02.

Other currencies remained around earlier levels before the release, and reacted in a similar way to the Euro afterwards.

Time to Buy Dollars as Euro Reaches Austerity Limits

Aug. 2 (Bloomberg) -- FX Concepts LLC, the hedge fund that bought the euro in June just as it began a 9.7 percent surge against the dollar, now says it’s almost time to get out of the currency.

The firm, which manages $8 billion in assets, expects the euro’s advance from a four-year low on June 7 to come undone by September, partly because European austerity programs will start to weigh on growth. Reports last week that showed Spanish consumer confidence falling to the lowest level this year and banks tightening credit standards in the region suggest the budget measures may already be undermining the recovery.

The same fiscal measures that helped restore confidence in the euro may soon weaken the region’s economies and torpedo the rally. A July 30 survey of 21 money managers overseeing $1.29 trillion by Jersey City, New Jersey-based research firm Ried Thunberg ICAP Inc. found 75 percent don’t expect Europe’s common currency to strengthen over the next three months.

“Austerity is really bad for growth,” said Jonathan Clark, vice chairman at New York-based FX Concepts, the world’s biggest currency hedge fund. “In the U.S., austerity is mainly on the state level, but in Europe they are whole-hog into cutting spending to reduce deficits. Under a pessimistic scenario, the European currencies are in a lot of trouble.”

Spending Cuts

Spain, Portugal and Greece will reduce spending by an average 4.3 percent of gross domestic product from 2009 to 2011, said Gilles Moec, an economist in London at Deutsche Bank AG, Germany’s largest lender. The euro area will expand 1.5 percent this year, less than a previous estimate of 2 percent, UBS AG, the biggest Swiss bank by assets, said in a July 16 report.

The cuts contrast with the U.S., where President Barack Obama signed into law a $34 billion extension of unemployment benefits last month. The Congressional Budget Office projects a record $1.47 trillion deficit this fiscal year ending Sept. 30, and $1.42 trillion in 2011.

While U.S. growth is slowing, it beats the European Union, where a 750 billion-euro ($981 billion) backstop for the region’s most indebted nations stabilized the currency after it slid from $1.5144 on Nov. 25 to the June 7 low.

U.S. GDP grew at a 2.4 percent pace in the second quarter, compared with 3.7 percent in the prior period, the Commerce Department in Washington said July 30. Corporate spending on equipment and software jumped at a 22 percent annual rate, the biggest increase since 1997.

The median second-quarter estimate for the euro region is 1.30 percent, and 1.10 percent for the year, based on a survey of 20 economists by Bloomberg.

Budgetary ‘Zeal’

Federal Reserve Chairman Ben S. Bernanke said July 22 more fiscal stimulus is needed to support the U.S. recovery. European Central Bank President Jean-Claude Trichet is taking the opposite tack, writing in the Financial Times that industrial countries should begin addressing deficits now. The ECB meets Aug. 5, and will likely keep its key interest rate at 1 percent, according to all 51 economists surveyed by Bloomberg.

“We continue to question the sustainability of the euro’s recent rebound given the zeal with which European officials have embraced fiscal consolidation,” said Mansoor Mohi-uddin, global head of currency strategy in Singapore at UBS. The world’s second-biggest currency trader, after Deutsche Bank, predicts the euro will end this year at $1.15. “We expect the euro to face renewed downward pressure.”

Raising Estimates

The euro strengthened 1.1 percent to $1.3052 last week, capping the biggest monthly gain since May 2009. While it rallied against the greenback in the five trading days ended July 30, it was little changed based on Bloomberg Correlation- Weighted Currency Indexes, rising 0.1 percent. It gained 0.2 percent to $1.3080 today.

Rising confidence in Europe’s economy and a slowdown in the U.S. helped quell speculation the 16-nation currency union would splinter. Goldman Sachs Group Inc., Wells Fargo & Co. and at least 12 other firms raised their estimates for the euro in June or July, Bloomberg data show. The 15 percent slide in the first half also proved a boon for German exports.

The number of unemployed Germans fell in July to the lowest level since November 2008, the Federal Labor Agency in Nuremberg said July 29. The same day, an index of executive and consumer confidence in the region compiled by the European Commission in Brussels rose to the highest level since March 2008 in July.

‘Great Deal’

“Governments have done a great deal bringing stability back to the region, and that will manifest itself in a stronger euro in the longer term,” said Fabrizio Fiorini, head of fixed income at Aletti Gestielle SGR SpA in Milan.

The bears say Germany will be unable to prop up the euro much longer as the Frankfurt-based ECB’s quarterly Bank Lending Survey released July 28 showed banks tightening credit. Consumer confidence in Spain fell to minus 26 last month from minus 25 in June, while sentiment in Portugal and France matched their lows for the year, the commission said July 29.

The euro may reach $1.33 before falling along with stocks, according to Clark at FX Concepts. The median estimate of 39 strategists surveyed by Bloomberg is for it to weaken to $1.21 by year-end.

The euro “will correlate strongly with equities,” Clark said. “We are expecting equities to turn around and go down into the second quarter of next year or longer.”

The MSCI World Index advanced 8.9 percent since the euro rally began eight weeks ago.

Bond Signals

Record gains this year by longer-maturity German bonds show investors are concerned growth across Europe may wane. Securities due in 2020 and later returned 13.8 percent, the most since the euro’s introduction in 1999 and compared with 13.1 percent for similar-dated Treasuries, indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies show.

“There’s still a lot of stress in the euro-zone economy,” said Shahid Ikram, deputy chief investment officer at Aviva Investors. The market is “probably viewing the debt burden as being deflationary. Any reduction in debt is likely to impinge on the potential rate of growth,” he said.

The fund management division of Britain’s second-largest insurer, which oversees $403 billion in assets, is looking for opportunities to bet the euro will weaken against the dollar, Ikram said.

Currency Options

Demand for options granting investors the right to sell the euro versus those giving the right to buy suggests eight weeks of appreciation may peter out.

The euro’s three-month option risk-reversal rate was minus 2.14 percent on July 26, approaching the most since June 29. When negative, the measure means demand for options giving the right to sell the currency is greater than demand for those that allow purchases. The rate was minus 1.71 percent today.

“The fiscal challenges facing the euro zone remain immense,” said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto and the most accurate foreign- exchange forecaster from the end of 2008 through the first half of this year based on data compiled by Bloomberg. Osborne forecasts the currency will depreciate to $1.08 by year-end.

“The euro needs to go lower to try and help some of the fiscal bite that is going to start to have an impact on some of the more peripheral economies,” he said.

A weaker euro may help companies in the region as it boosts competitiveness and makes revenue earned overseas worth more when it’s brought home. Eni SpA, Italy’s largest oil and gas company, said July 28 second-quarter profit jumped 81 percent as crude prices climbed and the euro declined.

Gary Shilling, president of the economic research firm A. Gary Shilling & Co. in Springfield, New Jersey, has predicted the euro may drop to parity with the dollar since January. He was correct in all 13 of his investment guidelines for 2008.

“This has really just been a lull between storms in Europe,” Shilling said. “We still have a situation where the likelihood of defaults and restructuring in Greece, and probably Portugal and Spain, are still very high. That doesn’t mean they won’t be bailed out, but the turmoil that is likely to result should drive the euro lower.”

EUR/USD Weekly Technical Forecast (Aug 2-6 2010)

The rate decision stand in the center of a week full with economic indicators. Here’s an outlook for the European events and an updated technical analysis for EUR/USD.

EUR/USD daily chart with support and resistance lines on it. Click to enlarge:



The Euro edged up in the past week, but did it with hesitation. It’s still too dependent on US weakness to rise. When more credit rating issues appeared in Spain, it took a breather. Will it make an impressive breakout this week, or will the rally end? Let’s start:

1. Final Manufacturing PMI: Published on Monday at 8:00 GMT. Purchasing managers in Europe’s manufacturing sector were more optimistic according to the initial release, sending the score from 55.6 to 56.5 points. This will probably be confirmed now.


2. PPI: Published on Tuesday at 9:00 GMT. Friday’s CPI Flash Estimate saw inflation rising at an annual pace of 1.7% – advancing but falling short of expectations. Also producer prices are expected to be on the rise – from 0.3% to 0.4%. Only a more significant rise will cause inflationary fears.


3. Final Services PMI: Published on Wednesday at 8:00 GMT. Also the purchasing managers in the services sector became more optimistic – with the score rising from 55.5 to 56. It will probably be confirmed as well.


4. Retail Sales: Published on Wednesday at 9:00 GMT. Germany’s retail sales were a bitter disappointment on Friday – dropping by 0.9%. The figure for whole Euro-zone is expected to follow with a drop as well, but much more modest – 0.1%. A positive number will boost the Euro.


5. German Factory Orders: Published on Thursday at 10:00 GMT. After many strong months, factory order corrected with a drop last month, of 0.5%. And now, just before the rate decision, we’re expecting the positive trend to resume with a rise of 1.5%.


6. Rate decision: Published on Thursday at 11:45 GMT. Jean-Claude Trichet is widely expected to leave the Minimum Bid Rate unchanged at 1%. While inflation is slightly rising, it’s still far from worrying levels (like in Britain). On the other hand, unemployment remains high in the Euro-zone, and the debt crisis is far from over. 45 minutes after the rate decision, Trichet will hold a press conference. Any comments will rock the Euro.


7. German Industrial Production: Published on Friday at 10:00 GMT. Complementing the factory orders number on the previous day, this figure is also expected to be positive – with a rise here of 1.1%, continuing a positive trend of the past 3 months.

EUR/USD Technical Analysis

The Euro began the week by rising from the 1.2880 line towards 1.30. After struggling with strong resistance around this level, EUR/USD climbed up to 1.3107, just under the 1.3114 resistance level, before dropping and closing at 1.3050.

Most lines haven’t changed since last week’s outlook. EUR/USD is currently bound between the psychological level of 1.30 and the fierce resistance line of 1.3114 – a line that supported the pair in May, before the big collapse, and afterwards capped an attempt of recovery.

If Euro/Dollar breaks above this level, the next hurdle is 1.3267, which was a support line twice (March and April). Above, 1.3435 was also a strong line of support in February and later worked as resistance in April.

Even higher, the notable lines of resistance are at 1.37, and this is followed by the area of 1.3850 – a level last seen 6 months ago.

Looking down below 1.30, the next line is 1.2880, which held the pair in 2009 and now works as a minor line of support. Below, 1.2720 worked as a resistance line at the beginning of July and later supported the pair – it’s a strong support line now. It’s followed by 1.2672, which capped the pair in May.

Lower, 1.2520 worked as a support line several times in the past, and it’s followed by a former resistance line at 1.2460, which provides further support. There are more lines below, with 1.2150 being the most significant one down the road.

It’s also interesting to look at the pair’s uptrend channel (also in the graph. EUR/USD is currently trading within this steep channel. A break to either direction will be a signal.

I am neutral on EUR/USD.

The Euro-zone still has issues of its own. The stress tests failed to provide confidence and the unemployment rate is still very high. On the other hand, the US isn’t doing too good either. 1.3114 is the key level.

GBP/USD Weekly Technical Forecast (Aug 2-6 2010)

A very busy week expects cable traders, with 9 important events. The rate decision is the peak but other data will also rock the rising Pound. Here’s an outlook for the British events and an updated technical analysis for GBP/USD.

GBP/USD daily chart with support and resistance lines on it. Click to enlarge:



In the past week, Mervyn King finally ackowledged the rising inflation and sent the Pound over the tough 1.5520 resistance line, for the first time in 5 months. Will this continue? Let’s start:

1. Halifax HPI: Publication time unknown at the moment. After the Nationwide HPI disappointed with a drop of 0.5% in prices of homes, also this indicator is expected to show a drop of 0.4% – the third consecutive drop. The figure is based on the internal data of HBOS, making it very reliable. The Pound will rock with every result.


2. Manufacturing PMI: Published on Monday at 8:30 GMT. According to this survey of 600 purchasing mangers in the manufacturing sector, Britain continues to grow at a stable and good pace, with the score standing at 57.5 points, high above the critical 50 point bar, meaning economic expansion. It’s expected to slightly drop to 57.1


3. Construction PMI: Published on Tuesday at 8:30 GMT. Contrary to the manufacturing and services sectors, purchasing managers in the construction sector turned positive only 4 months ago, but this indicator also reached a high score of 58.4. Also here, it’s expected to edge down to 58.2 points.


4. Nationwide Consumer Confidence: The Nationwide Building Society surveys 1000 consumers for this important indicator. Despite the recovery in employment, consumer confidence deteriorated in the past few months. After gradually dropping from 81 to 63 points, another slide is predicted – to 60. This indicator is highly regarded by the MPC, just before the rate decision.


5. Services PMI: Published on Wednesday at 8:30 GMT. Completing the array of PMIs, the services sector isn’t doing as well as the other sectors. From a score of 54.4 (still positive), Services PMI is likely to rise to 54.8 points. This is the last indicator before the rate decision.


6. Rate decision: Published on Thursday at 11:00 GMT. Official expectations for the Official Bank Rate are for an unchanged value of 0.50%. But, things are starting to move in Britain. Apart from Andrew Sentance, that already voted for a rate hike, the improving employment and fast growth in Q2, together with inflation – all call for a rate hike. We’ve also seen a change in Mervyn King’s attitude – expressing concerns from inflation for the first time. Will there finally be a hike to boost the Pound, or will it remain unchanged for an 18th time in a row? Anyway, the Pound will shake on the decision as well as on the wording of the MPC Rate Statement.


7. Manufacturing Production: Published on Friday at 8:30 GMT. This important indicator rose by only 0.3% last month, after dropping on the previous month. Another rise is expected this time, and it’s expected to be at 0.6%. Note that manufacturing is around 80% of Industrial Production released at the same time (expected +0.3%), but manufacturing tends to draw attention.


8. PPI: Published on Friday at 8:30 GMT. Slightly overshadowed by manufacturing production, his important inflation figure is expected to drop for a third month in a row, indicating that consumer prices could also calm down. PPI Input, the more important figure, will probably drop by 0.4%, double last month’s drop. PPI Output is expected to rise by 0.1% after falling by 0.3% last month.


9. NIESR GDP Estimate: Published on Friday at 14:00 GMT. The National Institute of Economic and Social Research is known for its accurate predictions. It releases a GDP estimate every month, filling the gap of the government releases that are published only once a quarter. NIESR showed that the economy grew by 0.7% in Q2, less than the official first release. Will this be revised upwards, or will the second release by the government be revised to the downside? Anyway, we’ll get a peak at July – the first month of Q3.

GBP/USD Technical Analysis

The Pound managed to climb over the minor resistance line at the beginning of the week, and traded in a narrow range between 1.5472 and 1.5520. It finally made the breakout above this major hurdle. By the end of the week, it also made an attempt to cross 1.5720, but bounced back to close at 1.5688.

Note that some higher lines were added on last week’s outlook. The Pound now ranges between 1.5520, which turned into a strong support line, and 1.5720, which was the bottom in October 2009.

Higher, 1.5833 is a very strong line of resistance – it supported the Pound before the collapse in February, and also worked as a resistance line immediately afterwards. Higher, 1.6080 is a minor resistance line after being a swing high in February.

Even higher, 1.6270 worked as a support line when the Pound traded at higher ground, and now works as resistance. It’s followed by 1.6450.

Looking down below 1.5520, the 1.5470 line now works as minor support. It’s followed by 1.5350, a pivotal line many times in the past. Below, 1.5230 and and 1.5130 worked as support and resistance lines in July, and cushion the pair now.

Lower, 1.5050 capped a recovery attempt in May and now works as resistance. It’s followed by 1.4870, a support line in June, and 1.4780, which supported the Pound on the big collapse in May.

I continue being bullish on GBP/USD.

After getting a boost from the GDP, Mervyn King also began hinting that a rate hike will come, supplying more fuel for Pound bulls. After breaking above 1.5520, there’s still lots of room for rises.

AUD/USD Weekly Technical Forecast (Aug 2-6 2010)

A very busy week expects Aussie traders, with the rate decision standing in the limelight. Here’s an outlook for the 13 events that will rock the Aussie, and an updated technical analysis for AUD/USD.

AUD/USD daily chart with support and resistance lines on it. Click to enlarge:



The quarterly release of CPI was weak in the past week. This hurt the Aussie, as this convinced everybody that there will be no rate hike. Let’s start:

1. AIG Manufacturing Index: Published on Sunday at 23:30 GMT. The Australian Industry Group published its first PMI-like index very early in the week. According to this survey of 200 manufacturers, activity slowed down in the past month from 56.3 to 52.9 points. Another drop is predicted this time, but the score will probably remain above 50 – meaning economic expansion.


2. MI Inflation Gauge: Published on Monday at 00: 30 GMT. The Melbourne Institute publishes this unofficial CPI figure once a month, filling the gap for the government, which releases the consumer price index only once a quarter. Inflation slowed down to 0.3% last month and will probably be the same this time, or even lower. The official CPI was also weaker than predicted.


3. HIA New Home Sales: Published on Monday. The Housing Industry Association showed a drop of 6.4% in new home sales, after a rise in a similar scale (6.2%). This volatile index will probably drop once again – the result of the rate hikes, but the scale will probably be smaller.


4. Commodity Prices: Published on Monday at 6:30 GMT. This release comes a few hours after New Zealand’s similar release. Nevertheless, it always rocks the Aussie. The year over year change stood on about +43% in the past two months. A similar number is expected now.


5. ANZ Job Advertisements: Published on Tuesday at 1:30 GMT. This unofficial employment gauge serves as warm up for the official job figures due 9 days later. The amount of jobs advertised in the media made a nice rise of 2.7%, going hand in hand with the improvement seen in the official figures. Another rise is expected this time. Note that two more important market-moving figure are released at the same time. They’re listed below.


6. Building Approvals: Published on Tuesday at 1:30 GMT. After two sharp drops seen in previous months, the number of approvals is expected to recover with a rise of 2.1%. Note that this indicator tends to be very volatile, yet highly regarded.


7. Retail Sales: Published on Tuesday at 1:30 GMT. This important consumer figure is of high importance. Three months of small rises will probably be followed by a fourth one – the volume of sales will probably rise by 0.4%, double last month’s rise.


8. Rate  decision: Published on Tuesday at 4:30 GMT. Three hours after the influx of three major indicators – the most important event occurs. The last rate hike from Glenn Stevens came in May, when he hiked the Cash Rate from 4.25% to 4.50%. Since then, it remained unchanged. Also now, especially after the weak CPI, the RBA doesn’t fear inflation, and will probably leave the rate unchanged. The Aussie will shake on the accompanying RBA Rate Statement, which will provide explanations for the decision.


9. AIG Services Index: Published on Tuesday at 23:30 GMT. According to AIG, the services sector is contracting. The survey of 200 companies scored 48.8 points last month. A score under 50, as seen also in the previous month, means that the sector is squeezing. It’s now expected to rise and top the 50 point mark.


10. Trade Balance: Published on Wednesday at 1:30 GMT. Australia enjoys a surplus in its trade balance in the past two months. Last month’s surplus, 1.65 billion, exceeded expectations by a three-fold. Another rise, to 1.81 billion, is expected now.


11. HPI: Published on Wednesday at 1:30 GMT. This official house price index lags other indicators, but is of high importance due to the fact that it’s released only once per quarter. After a full year of strong rises (between 4.2% to 5.1%), a smaller rise will probably be seen this time – 2.2%.


12. AIG Construction Index: Published on Thursday at 23:30 GMT. The last indicator from AIG unexpectedly fell below 50 points last month, triggering worries about this sector as well. It’s now expected to bounce back from 46.4 to above 50.


13. RBA Monetary Policy Statement: Published on Friday at 1:30 GMT. This statement from the central bank continues the rate statement. It not only explains the policy, but also consists of forecasts for the upcoming months. Hints about monetary policy can also be seen here. The Aussie usually rocks on this release.

AUD/USD Technical Analysis

The Aussie rose to the area of 0.9080 at the beginning of the week, but it then fell sharply under 0.8950. A second rise also stopped at around 0.9080, making it a new resistance line (didn’t appear last week). The Aussie finally closed at 0.9043, above the psychological 0.90 line.

AUD/USD is bound in the area that it traded in the past week – between 0.8950, which was also a support line in November, and 0.9080 – the double-top in the past week.

Looking down, the next line of support is 0.8870 that capped the pair twice in June and July. After this line was broken to the upside, AUD/USD didn’t get close to it, making it a strong line.

Below, 0.8735 was the low point in December and also a line of support recently. It’s followed by 0.8660, also a minor support line in recent months, and then by 0.8567, which provided support many times in the past year, and also served as a resistance line in May.

Looking up above 0.9080, the next resistance line is quite close – 0.9135. This was a support line when the Aussie was trading higher. Above, 0.9220 had a similar role, and it works as resistance as well.

Even higher, 0.9327 held the pair 5 times in the past year, and provides strong resistance. The next lines are close – 0.9366 was a peak in April, and 0.9405 is the highest level in 2009.

I remain bullish on the Aussie

Despite the weak CPI, the Australian economy is doing great. With strong employment, AUD/USD has more room to rise.