EurAnalysis

There's a slightly different view on that nowadays. If we end up in another financial crisis similar to 2008, whilst we will certainly see USD strength, I think that this time around the AUD and CAD may be somewhat seen as alternate safe haven currencies. Just a thought.

Good morning PT!

Interesting. I will definitely keep that in mind.

Do you know why it is different this time around? Just curious. Thanks for the heads up PT.

Important hour, in my opinion need a hourly close below 1.2530. Price staying below 1.2520 may change the bullish picture next week.

I am thinking the same thing as PT for the CAD as seen in USD/CAD for the past several months. It doesn't move as much as crude price.

Combination of US political uncertainty and relatively good economic conditions in Canada and Australia. At least that is my take at the moment. Things do change

Charts have spoken about this move ( for Euro) but may be we have not given much importance to it .

Good morning all. It's Fridayyyyyy

As anticipated yesterday, it seems for now that resistance at 1.2590 area has held, however we did not get a retrace. If I had to decide whether to attribute the stall to the technicals or fundamentals, I would be split 50/50 either way. Yesterday the QE3 band wagon got their hopes dashed by statements from the Fed's Bullard when he said that the FOMC meeting minutes were stale because the discussions at the last meeting were based on stale economic data and that the situation has slightly improved since then. I fully agree with his assessment of the situation and I've been saying it all along. However, it goes to show that it does not matter what we traders think. It is more important what the Central Bankers say. The Fed's Evans said however, that until the US sees some substantial growth, the Fed should be ready to do more. So here we have a bit of a mixed bag of easing sentiment, but facts are facts. What Bullard said is fact. What Evans said is opinion. Of course what the market will have to wait for is Bernanke's speech at Jackson Hole next week.

Speaking of Jackson Hole, the market is anticipating that Draghi may give some hints about the ECB's plan at the annual symposium. The ECB's bond buying plan is the second factor in play affecting risk sentiment. A disappointment from the Fed would be market negative and keep things running slow, but a disappointment from Draghi would be devastating and could spell the beginning of a fresh major setback for the Euro. As such, I fully expect Draghi to live up to his word, but he and the ECB cannot solve the Euro crisis all by themselves. In order for the plan to work, Spain and Italy will have to come forward and request aid. Such aid request comes with conditions attached to it. Such conditions will include these countries giving up some of their (fiscal) sovereignty in exchange for the aid requested. My opinion is that the market has not and probably will not inflict the economic pain required for Italy and Spain to get on their knees. So status quo it is. The Italian and Spanish bond yield curves will return to normal (steep) but the long term rates will remain high. However not quite high enough to cause Rajoy or Monti to come crawling on their knees. For the Euro, this means that it will remain in the lower regions and as the global economic situation worsens, the USD Fixed Income (Bonds) will be the preferred investment instrument. In the end this means further EUR/USD losses without a rout on the EZ periphery bond market. Time will tell how it all plays out, but that's how I see it unfolding.

So, what about today? Well it's Friday and what usually happens on Fridays is that the gains seen during the week get partially unwound during times of uncertainty or low confidence. Will that happen today? Well in my opinion it all depends on why the Euro has seen gains in the last week. If it is due mostly to short coverings by marco market players, then we may not get much of a pullback from the highs and might even see more short covering. However, if the move was mostly due to the same macro players buying up the Euro and/or dumping the USD, a correction will be due before day's end.

Technically nothing has changed since yesterday's outlook. We are still below the the resistance areas I mentioned yesterday and I still see a MacD bearish divergence on the daily chart.

Here is an excerpt from yesterday which describes the technical outlook...

Apparently we are almost at one such important technical level. Looking at my daily chart, my attention is now focused on a level of extreme confluence at around 1.2595. Here are the levels.

1. 38.2% Fib retrace level of the move down from 1.3484 to 1.2041
2. 78.6% Fib retrace level of the move down from 1.2742 to 1.2041
3. Rising channel resistance line
4. The resistance at the rising trend line support of the June correction

To confirm these levels as a highly probable resistance, I confirm a Daily MacD bearish divergence and a Daily RSX reading above 90 and starting to point down. Also a nice supply zone formed by the June 29 Rally which formed the right shoulder before the drop to the yearly low of 1.2041

Anyway, as always time will tell. As new information develops, I will broadcast it through my Twitter account, so make sure your're following me (@PipTrapper)

Be well and trade safe.

E/U Daily

Today’s orderboard

Written by Pete Jackson
August 24, 2012 at 05:54 GMT

EUR/USD: Offers 1.2580 (Supranational, option related) up to a 1.2600 barrier, stops above and more likely through 100 day MA at 1.2613. Bids from 1.2520/30 (M/East, sovereigns), suggested sell stops through 1.2520 and again through 1.2500.

GBP/USD: Offers/tech res 1.5905/15, bids 1.5850/60 likely sell stops below ahead of more bids 1.5800/20

EUR/GBP: Offers 0.7920/30 (55 day MA – 0.7927/ falling trendline res around 0.7930 from late Feb), possible buy stop above 0.7950 ahead of larger offers 0.7995/00. Tech supp 0.7900/05 and 0.7875/80

USD/JPY: Offers 78.60/70 (exporters), and 79.00/10. Bids 78.40/50, sell stops through 78.25 ahead of better bids 78.00/10, large sell stops through 77.95

EUR/JPY: Bids 98.30/40 and 98.00/10. Sell stops below through 55 day MA at 97.95 ahead of tech support 97.75/85 (Aug 20 lows 97.73/ tenkan line 97.85). Offers 98.70/80 with larger down at 99. 10/20

AUD/JPY: Strong tech supp 81.50/65 (August lows, kijun line 81.53/200 day MA 81.61) and 81.00/10 (81.09 – 100 day MA). Res 82.15/25 and 82.70/80 (14 day MA- 82.73)

EUR/CHF: Bids 1.2000/10(SNB), Offers 1.2025/30 buy stops up through 1.2040

AUD/USD: Bids 1.0400/10 ahead of suggested barrier 1.0400, good tech support below at 1.0380/90, but sell stops below ahead of bids 1.0350/60, more sell stops just below. Offers 1.0450/60 from Japanese/US banks, sovereigns, CTA’s and more 1.0490/00

EUR/AUD: Offers 1.2040/50 and 1.2090/00, buys tops likely just above. Tech supp 1.2000/10 and 1.1940/50

NZD/USD: Bids 0.8100/10 sell stops below ahead of more bids 0.8080/90 and larger from real money, corporates down at 0.8060/70(likely sell stops just below) and tech supp/bids again 0.8000/10 (0.8001- 55 day MA). Offers 0.8135/45 and 0.8180/90

Euro FX option expiries for today @ 14:00 GMT

1.2450
1.2500
1.2510
1.2550

Barrier option reported at 1.2600
.

THen ucad will be doomed. Lol

No that's not what I meant. U/CAD will still rise and AUD/USD will still fall. However, it will not be to the same extent as the last time. I said they would be alternate safe havens... not primary.

It used to be ranked like this
1. CHF
2. JPY
3. USD

A future Financial crisis may look more like this
1. JPY
2. USD
3. CAD
4. AUD

5. ADD to it, the major 1.1875 to 1.4939 move 's - 23.6 % or 76.4% whichever way you read , This comes around the same area as well . PT so much reasons available for reversal .

I have to agree with this statement, IMO, it's just these currencies (their corresponding economies) have steered the global crisis with more ease than others and less volatility too.

Good catch Prashant. I didn't notice that.

Totally agree with jpy and usd moving up. In fact we already saw this in action.

http://sprott.com/markets-at-a-glanc...s-death-knell/

Snippet:

NIRP: The Financial System’s Death Knell?

By: Eric Sprott & David Baker

On July 18th, 2012, the German government sold US$5.13 billion worth of 2-year bonds at an average yield of -0.06%. Please note the negative symbol in front of that yield number. What this means is that the German government was able to borrow money for less than nothing. When those specific bonds expire in two years’ time, the German government will pay back the original $5.13 billion minus 0.06%. Expressed another way, investors knowingly and willingly bid the German government $5.13 billion in exchange for bonds that will pay no interest and are guaranteed to lose them money on expiration.1 Welcome to the new status quo.

Germany is not alone. Over the past six months, the countries of Netherlands, Switzerland and France have also issued short-term government debt at negative yields. Like Germany, they’ve been able to do this because European bond investors are so shell shocked that they’d rather park money in a bond that’s guaranteed to only lose a miniscule amount rather than risk losing more in a PIIGS bond that actually pays some interest. In addition, many investors view German, French and Dutch bonds to be cheap options on the break-up of the Eurozone. If the EU currency union collapses, euro-denominated bonds issued by those specific countries may be paid back in re-issued deutschmarks, francs or guilders, which will be far more valuable than the euros that were spent to buy the bonds in the first place… or at least that’s the idea. As a result of this thinking, the bond market auctions for these select countries have seen overwhelming demand, making NIRP (Negative Interest Rate Policy) the new ZIRP (Zero Interest Rate Policy).

The NIRP acronym is misleading, however, because unlike ZIRP, NIRP isn’t actually an official “policy” per se, but rather a symptom of a broken financial system increasingly starved for good ‘collateral’. Aside from those speculating on a Eurozone currency collapse, a large portion of the bond investors participating in NIRP bond auctions are the banks. As the euro crisis has dragged on, banks in perceived “strong” countries like Germany and Switzerland have seen record inflows of deposits from banks in peripheral EU countries, like Spain. As most of these “strong country” banks have been hesitant to lend those deposits out (for obvious reasons), they are forced to park them in short-term government bonds.

Moreover, new rules imposed by various regulators such as Basel III have forced all banks to hold a larger percentage of their balance sheet in government bonds, regardless of their country of domicile. The result has been a mad dash into the bond auctions of select “safe” countries just as the pool of available AAA-bonds has been drastically reduced. Banks are piling into NIRP bond auctions today because they have nowhere else to go. This is why nobody seems to be alarmed by the recent ubiquity of NIRP bond auctions – they are merely thought to be a short term phenomenon that will pass in time… just like zero-percent interest rates were supposed to be when they were widely introduced four years ago (sigh).

NIRP is different than ZIRP, however. NIRP causes outright financial destruction. Economies can hardly survive extended periods of ZIRP rates, let alone survive a long-term NIRP environment. It just doesn’t work.

Institutional investors like pension plans and life insurance companies cannot earn enough “spread” to function properly. And many aren’t allowed to buy different asset classes that might produce a better “spread”, even if they wanted to. They are stuck holding the AAA government debt issuers – positive-yield, or not.

Negative rates also punish the individual investor. Try going online and using one of the banks’ retirement savings simulators and plugging in a negative expected return – you’ll break the program. The same also goes for the investment advisory business. When so-called safe-haven bonds start to consistently produce a negative return, try charging advisory fees to clients while recommending a 50% allocation to negative-yielding government debt. Advisors can try it for a while, but investors won’t put up with it for long.

PLEASE READ ON ...

I continued on reading the Sprott article and I found this rather enlightening section on bonds.

The recent emergence of NIRP auctions are a signal that the relationship between governments, banks and investors has broken down. While the market still presumes that NIRP is a short-term phenomenon confined primarily to Europe, the dearth of AAA-assets coupled with banks’ captive bond purchasing suggests it may be structurally enforced for a long time to come. There’s even the potential for NIRP to emerge in the US bond market. As Bloomberg reports, the gap between US bank deposits and loans hit a record $1.77 trillion at the end of July 2012, representing an expansion of 15% since May.2 “Banks have already bought $136.4 billion in Treasury and government agency debt this year, more than double the $62.6 billion purchased in all of 2011, pushing their holdings to an all-time high of $1.84 trillion.”3 The current 2-year US Treasury bill is yielding a paltry 0.29%. If something exciting happens in Europe, what’s to stop the bond market’s typical knee-jerk move into US Treasuries from pushing that yield down past zero? Not much. We could be there before the end of the year, especially if the banks continue to gorge on ongoing US Treasury auctions in the meantime.

CurrencyMan:

As I have continued to learn more and more about the financial world and the movement of Asset Classes I have come to realize the importance of a better understanding of the World Bond market.

What Sprott is suggesting is mind boggling to me however easy to understand. FEAR of loss of money is most powerful for all of us unless we have Billions tucked away somewhere.

What if this suggested possible event happens ?

Money will FLOW into the US Bonds and Gold.

What will that do to the Euro and some of the other currencies ?

Those that really want to be ahead of the curve should keep this in mind so that if it happens they can better understand why certain currencies are moving the way that they are. The charts will reflect the move however fundamentals and knowledge will give you insight into it before the event happens if it does and give you a better and earlier heads up than most out there.

Parties like Sprott and their clients will know.

Will you know ?

I already know

Uk revised GDP figures are scheduled to be released at 08:30 GMT... 28 minutes from now.

If growth does not pick up on the back of all that stimulus then a 2008 panic might emerge again devaluing hopium full of stocks greatly and AUD WILL be the worst performer. Euraud and gbpaud will be the best performers. The bigger the panic the greater the AUD free fall. High yielders are only seen as a "safe heaven" in good times (if u know what i mean).

After all it's not about piling into what is thought to be a safe heaven, but fleeing from those massive investments accumulated during these "stable" times where AUD hits records with usd and eur. Is it rational given debt and yield difference ? No. But it wasn't rational back in 2008 either.

It's not a matter of economic efficiency based rationality. Traders and investors are behind every trade.

Nothing has changed. Not before U.S. fiscal situation falls off a cliff, anyway.