International Trading

Gold under Pressure as U.S. Dollar Mounts Strong Rally

Posted by Usman Ali Minhas on Monday, October 18, 2010 , under , , , , , , , |



International Trading



The stronger U.S. Dollar is putting pressure on December Gold overnight. Long traders began taking profits in gold on Friday following a turnaround in the Greenback, triggered by conservative comments from Fed Chairman Bernanke regarding quantitative easing.

The overnight sell-off has helped form a two-day top in Dec. Gold at $1388.10. The new main range is $1237.90 to $1388.10. This makes $1313.00 to $1295.30 a potential downside target. The swing chart indicates that a break through $1325.80 will turn the main trend down.

December Silver is developing a similar patter, but not as bearish as gold. The short-term range in Silver is 22.35 to 24.95 with a retracement zone at 23.65 to 23.34. The bigger picture suggests a possible break to 21.37 to 20.52 based on a range of 17.79 to 24.95. In addition to the retracement zone targets, a steep uptrending Gann angle at 23.87 is still providing strong support.

Last night, silver broke the Gann angle but stopped short of testing the minor 50% level at 23.65. The actual low was 23.71. After testing this retracement level, the market regained the uptrending angle, reducing some of the developing bearishness.

Look for weakness to develop under 23.87 and a possible acceleration to the downside under 23.65.

The U.S. Dollar confirmed Friday’s closing price reversal bottom with a follow-through rally overnight. The Greenback hit a 10-month low against a basket of currencies on Friday, but rebounded after Federal Reserve Chairman Ben Bernanke expressed uncertainty as to how much monetary easing the Fed would allocate to its quantitative easing program.

Following an almost 5 percent decline in October after investors increased bets the Fed would apply at least $1 trillion of new quantitative easing, traders pared bets on speculation the amount may not be nearly that amount. The overnight trading action suggests that the market may have priced in too much QE into the market.

Adding uncertainty over the Fed’s next move along with short-term oversold conditions, investors face the challenge to either take profits on short positions or put up with a possible choppy trade until the next Federal Open Market Committee meeting on November 2 and 3.

Some traders are also questioning whether Bernanke has the votes to implement a strong enough QE program although it’s been reported that at least 2 Fed members are leaning toward supporting an aggressive QE program.

Bernanke said on Friday that he fears deflation more than inflation. He also suggested that the Fed must do something to stay on course to reach its mandate of 2% inflation. This can only be accomplished through aggressively flooding the market with money.

So while there is a lull in the Dollar’s downtrend and a possible short squeeze taking place, many traders expect this current move in the Dollar to be short-lived. Once the Fed restarts the money printing machine, the Greenback should resume its uptrend. This may mean a 2 week consolidation or short-covering rally until the Fed meeting.

The December Euro closed below 1.40 for the week, taking the air out of some analyst forecasts for a move to 1.45. The outside move closing price reversal top could also be indicative of the start of a substantial correction. Last night’s follow-through break confirmed the reversal top.

This week’s rally through the last swing top at 1.4028 to Friday’s high at 1.4159 appeared labored. At times it seemed traders were tentative about going long at such a lofty level. In addition, much of the move seemed driven by a comment from the ECB’s Axel Weber calling for an end to the central bank’s asset buyback program rather than sound economic reasons.

Although the weakness started early in the U.S. session, Federal Reserve Chairman Ben Bernanke didn’t help matters much when he failed to clarify the Fed’s quantitative easing plan.

Bernanke gave a speech on Friday which failed to give traders the clarity they needed to continue to pressure the Dollar. Some feel that Bernanke may be lacking the consensus he needs to implement the QE program that he feels is necessary to revive the economy.

Technically a break through the last swing bottom at 1.3775 will turn the main trend down on the daily chart. The main trend indicator turned long on September 1. Besides turning the main trend to down, a break through this level may be setting up for a 50% correction of the 1.2587 to 1.4159 range to 1.3373.

Forex − EUR/USD, AUD/USD Flows − The picture changes?

Posted by Usman Ali Minhas on Monday, October 11, 2010 , under , , , , , , , |



International Trading



Published at 14:14 (GMT) 11 Oct
EURUSD
It's not a big move in terms of a normal market, but the push back to the north by the AUD appears to be at least a slight recognition of short positions at the business end of the AUD. Trade, we are told, is 'busy for a US holiday', an expression which could be taken in a number of ways! Technical studies are only slightly bearish on the currency, and another push to challenge the overnight highs in the 0.9905/10 area is all that it would take to change the picture to support the buyers. C.F.

Currency Majors Technical Perspective

Posted by Usman Ali Minhas on , under , , , , , , , |



International Trading



EUR/USD Current Price: 1.3930

View Live Chart for the EUR/USD

e

After starting the week around 1.4000, pair gave up some ground following a risk aversion movement triggered by China decision of raising the deposit reserve requirement for the country’s big four state-owned lenders and two other commercial banks, by 50 basis point that could affect the country growth.

Consolidating in a tight range due to the lack of volume, hourly chart shows indicators mostly flat, while 4 hours ones lost momentum; still pair holds above key 1.3880/90 area, 61.8% retracement of the 1.5140/1.1870 rally and the ascendant trend line. The upside remain now limited by 1.3960 static resistance zone.

Support levels: 1.3910 1.3880 1.3840 

Resistance levels: 1.3960 1.3990 1.4030

GBP/USD Current Price: 1.5928

View Live Chart for the GBP/USD (Select the currency)

g

Unchanged from past Friday’s Wall Street opening, pair has a bearish tone for this week, as limited by strong 1.6000 resistance zone. Hourly indicators heading south under their mid lines, while price action develops under 20 SMA support the bas. Immediate support lies at the 1.5880 area, followed by 1.5810/40 zone.

Support levels: 1.5880 1.5840 1.5810

Resistance levels: 1.5950 1.5985 1.6020 

USD/JPY Current Price: 81.93

View Live Chart for the USD/JPY (select the currency)

y

Pair reached yet another low near 81.40 on early interbank trading past weekly opening, and remains limited below 82.20 static resistance zone, holding a bearish tone in the different time frames; counting on BOJ intervention to reverse the strong trend seems not the best move in the cross, as lose of mentioned 81.40 low should suggest a retest of the all time low in the cross near 70.75. 

Support levels: 81.40 81.10 80.90

Resistance levels: 82.20 82.40 82.65 

USD/CHF: Current Price: 0.9625

View Live Chart for the USD/CHF (select the currency)

c

Ranging, pair holds the bearish tone both in 1 and 4 hours charts, limited today to the 0.9600/0.9640 price zone, as thin volume persists. Gold is giving up some ground, favoring the upside in the cross, thus gains above 0.9670 seem quite unlikely for today.

Support levels: 0.9600 0.9555 0.9500

Resistance levels: 0.9640 0.9670 0.9700 

Czech and Polish C/A balances in significant deficits

Posted by Usman Ali Minhas on , under , , , , , , , , |



International Trading



Czech Republic

FRA rates up, but rate hike expectations are premature

Hungary

Huge ecological catastrophe may not have significant on the economy

Poland

Parliament will discuss the draft of the public budget with deficit of 6.5 % of GDP

The Week Ahead

Czech and Polish C/A balances in significant deficits

Overview

Industry in Central Europe tracks strong German data
The August data on industrial output in the Czech Republic and Hungary show that the upswing in Central Europe continues. This is well in line with the outstanding performance of German industry, to which Hungarian and Czech industries are tied very closely.
In addition, a very positive phenomenon in both Central Europe and Germany is the level of new contracts that still remains very high. That’s very good news as the fiscal stimuli (such as scrapping bonuses) that positively influenced the performance of Central European industry, which is very strongly oriented on exports, have run out of steam.
Nevertheless, despite the highly positive results of Central European industry in recent months, we are afraid that this won’t continue necessarily given the fiscal tightening within the euro area in 2011, along with the inventory replenishment process slowly drawing to a close,. This will have a negative impact on exports and consequently on industrial growth in the region. Another argument against the optimistic expectation that industry will maintain its fast rise is associated with the fact that Hungarian and Czech industries will not be able to utilise the ever-improving demand from Asia to such a great extent as, for example, the German economy. The reason is that the exports from Central European countries to the Asian continent are negligible, representing approximately 5% of all exports.

EUR/USD Intraday

Posted by Usman Ali Minhas on , under , , , , , , , , , |



International Trading



EURUSD
StrategyNeutral – Entry Short
Entry1.4007
1stTarget1.3952
2ndTarget1.3900
Stop1.4029
Key LevelsComments
1.41952010 High
1.4029Thursday’s Eight Month High
1.4007This Morning’s High
1.3952Gap Support
1.3938Friday’s Close
1.3900Previous Support
1.3834Friday’s Low
Alternative ScenarioNeutral – Entry Long
Entry1.3952
1st Target1.4007
2nd Target1.4029

US data still support case for QE2

Posted by Usman Ali Minhas on , under , , , , , , |



International Trading



Market Outlook 

=> US data still support case for QE2 
=> G7 meeting unlikely to change underlying story of USD weakness
The G7 meeting at the weekend will be the main focus for FX markets coming into the week, given all the talk of “currency wars”, the recent BoJ intervention and the comments from Juncker complaining about EUR strength. But it is very hard to see the G7 producing a communique that significantly opposes further USD weakness against the majors, much less coming up with co-ordinated policy steps to target exchange rates as in the Plaza and Louvre Accords of the 1980s. 
The comments in the IMF’s latest world economic outlook should make it clear that there can be no agreement that the dollar is even undervalued. The IMF note that the dollar is still, by their measures, still on the strong side of medium term fundamentals, while the euro and the yen are broadly fair. This may not fully take into account the weakness of the dollar seen over the last month, but nevertheless indicates that the US is very unlikely to see current levels as a reason for opposing USD weakness, especially since the Fed sees US inflation as still lower than is desirable. The most the G7 are likely to agree on is the timeworn statement that “Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We continue to monitor exchange markets closely, and co-operate as appropriate”. This is standard, and essentially allows the market to move as it wishes, provided the moves are not too fast. The BoJ may yet make some more incursions into the market, but comments last week made it clear that these are smoothing operations rather than representing a line in the sand. The only clear FX recommendation that the G7 are likely to be prepared to make is that China allows its currency to continue to appreciate, but that is an issue that China will decide on.
As far as events are concerned this week, the market will be interested in the latest FOMC minutes (from the Sep 21 meeting) on Tuesday, but the recent Fed statements make it clear that QE2 is very much on the table, and it is unlikely that the minutes can add much to that at this stage. The market will consequently be interested in the US data, following last week’s slightly disappointing employment report and Bullard’s comments indicating some improvement in the US data of late. Most of the data is on Friday, and the Fed focus on low inflation in the latest statement suggests a focus on CPI.
In the UK, the labour market data may be the most relevant in terms of the QE debate, though the activity data has been generally soft. Sterling may hold up better against the EUR because Euro-zone opposition to USD weakness makes sterling an easier vehicle, but the underlying risk of QE2, relatively low UK short yields and weak UK growth prospects make a major sterling recovery look unlikely.

UMI consumer sentiment index (Oct): Less pessimism

Posted by Usman Ali Minhas on , under , , , , , , , |



International Trading



  • FOMC minutes (Sep): discussion about QE2 and release of adjusted projections
  • Trade balance (Aug): widening partly due to petroleum imports
  • Consumer prices (Sep): annual core rate stagnates at 0.9%
  • NY Empire manufacturing index (Sep): modest rebound
  • Retail sales (Sep): stronger rise particularly due to car sales
  • UMI consumer sentiment index (Oct): less pessimism
After the last meeting, the FOMC expressed its inclination to provide additional accommodation if needed to support the slowed economic recovery. The willingness to extend the easing measures was supported by the view that underlying inflation is currently at levels somewhat below those regarded as consistent with price stability. However, the FOMC minutes could show that not all members agreed on the need for additional quantative easing. Nevertheless there will have been some discussion about the possible design of “QE2”. The FOMC minutes will also include adjusted projections for GDP growth, unemployment and PCE inflation. As the table shows, the projections for growth and inflation were reduced and the projection for unemployment was already raised three months ago. We think that this could happen again. However, the inflation forecasts were already quite low.
Table
Import prices are likely to have fallen by about 0.3% mom in September, due to the decline in crude oil prices by about 6% in the statistically relevant first third of the month. The annual rate, which was 11.4% at the beginning of the year, could have gone down further to 3.6%. After having risen noticeably by 0.4% mom in August, producer prices might have increased moderately by 0.1% mom.
As adjusted gasoline prices could have risen again, we predict that consumer prices will have gone up by 0.2% mom in September. However, core CPI will probably have increased by a mere 0.1% mom, leaving the annual rate at 0.9% for the sixth consecutive month.
The trade deficit widened significantly in June, but corrected downward by almost $7bn in July, as imports fell sharply and exports rebounded. The ISM components for imports and exports remained elevated in August, and we therefore assume that exports and imports both have increased noticeably. However, imports are likely to have risen somewhat more than exports in August, because official figures from the Department of Energy indicate markedly higher oil imports. Thus the trade deficit could have widened to about $44.0bn. However, net exports are unlikely to have dampened the GDP growth rate in Q3, after they had accounted for –3.5 percentage points in Q2.
US Economic Indicators
Initial jobless claims went down by 11k to 445k in the week ending 2 Oktober. The 4-week moving average has been declining for six consecutive weeks to 456k at present. We expect jobless claims to have remained more or less unchanged in the week ending 9 October.
The New York Empire manufacturing index fell by 3 points to 4.1 in September, but its weighted subcomponents improved slightly. Therefore we expect the headline figure to have improved to about 7.0 in October, especially as the last index level appeared low compared to the national ISM index. However, the inventory adjustment cycle could be in its final stages, thus giving manufacturing less support. The predicted October level of the New York Empire is still only modest compared to the peak of 31.9 in April.
NY Empire & ISM Manufacturing Index
We expect retail sales to have increased by 0.6% mom in September. This would be somewhat stronger than in August, particularly due to higher car sales, which will be additionally lifted by a favourable seasonal adjustment figure. According to industry reports, back-to-school sales developed favourably, and thus the increase less autos could have reached 0.4% mom again; although consumer confidence indicators deteriorated in September.
The University of Michigan’s (UMI) preliminary October consumer sentiment could have increased slightly from 68.2 to 69.5. The final September index was revised upwards noticeably, showing that late respondents were much less pessimistic. However, the weekly ABC consumer comfort poll deteriorated at the beginning of October.
UMI
The growth in business inventories accelerated to 1.0% mom in July. Factory inventories only increased by 0.1% mom in August, but wholesale inventories again went up sharply by 0.8% mom. We forecast that total business inventories will have gone up by 0.4% mom in August.
The Congressional Budget Office (CBO) estimates that the budget deficit in September, the last month of the current fiscal year, was $32bn,compared to –$46.6bn in the same month last year. Higher outlays will have been compensated for by a noticeable improvement in tax revenues. Accoring to the CBO, the total deficit in fiscal year 2010 would amount to $1,291bn. This would be $125bn less than in fiscal year 2009. The deficit would be equal to 8.9% of GDP, after 10% in 2009.

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