GBP/USD and EUR/USD

Dollar Heavy While Waiting for Bernanke

Posted Friday, August 31, 2012 at 8:42 AM
Marc Chandler


The US dollar is trading softly in the lead up to Fed Chairman Bernanke's speech at Jackson Hole. The price action is still one of position adjusting.
While the euro and Swiss franc have made new multi-week highs against the dollar, sterling ad the Australian and Canadian dollars have moved through yesterday's highs only in early North American activity, dragged up apparently by the euro.

The dollar has made a marginal new low for the week against the yen, by around 4 ticks. The range for the week is now JPY78.40-JPY78.84, according to Bloomberg. Participants are also aware of month end adjustments and the long-holiday weekend in the US as factors impacting the price action.
Our views have not changed, but see that a Reuters poll finds our views are not in such a minority any more. The poll found 44% expected QE to be announced at the next FOMC meeting, down from 70% last month.


What does not appear to be having much impact are the fundamental news developments. In terms of data, this includes disappointing retail sales from Germany and Spain. German retail sales fell 0.9% in July. The consensus expected a 0.2% rise.

It is true that the June time series was revised to 0.5% from -0.1%, but net-net, over the two months retail sales were considerably weaker than expected. This dovetails with recent VDMA orders data showing foreign demand is holding up but domestic demand has weakened considerable.

Spain reported a 7.3% year-over-year decline in July retail sales, a marked acceleration from the 5.2% decline in June. A new 3-percentage point hike in the VAT goes into effect tomorrow. Often ahead of a consumption tax, one sees a bit a of a fillip in demand as people and businesses try to "beat " the tax. Not so in Spain.

Moreover, provides some insight into vicious cycle in the periphery. Spain raises the VAT to raise funds to close the deficit, while the economy is contracting. The revenues it generates falls shy of expectations because fewer goods are bought. The missed revenues then lead to missing deficit targets and spur increased pressure for more austerity. What ?

Meanwhile, reports in the German paper "Bild" claims that Bundesbank President Weidmann has threatened to resign over the ECB bond purchase. Recall when Trichet's bond program was initiated, both the BBK President Weber (who was seen as the most likely successor to Trichet) resigned as did Executive Board member (from Germany) Stark. The report suggests that the German government (Merkel?) has persuaded him to stay.

Seemingly related is the story in the Spanish paper "El Mundo" that claims that Merkel has been urging Spain's Rajoy and Italy's Monti to to formally request aid. Ostensibly the request is to allow some time to heal the internal dispute.

While many observers seem to be taking this at face value, we suspect there is more to it that meets the eye. First, there was not sign that Italy was about to ask for assistance. Indeed, it is not clear that the technocrat government of Monti can really do this, in lieu of a dire emergency. Monti may want the executive not to have to be totally accountable to parliament, but committing a country to a international aid package and a memorandum of understanding does not seem sustainable without broader support.

Second, the reports suggesting that Spain is looking at the possibility to recapitalize Bankia without drawing on the emergency aid funds shows that Rajoy wants to maintain his degrees of freedom. Using the EU/EFSF funds would likely require that junior debt holders realize losses (take a haircut). However, many of these junior debt instruments are in the hands of retail investors. Forcing a haircut on them, given the level of unemployment, rising VAT, and falling home prices, just to cite a few of the plagues on the House of Spain could only add to the social tensions.

Meanwhile, reports suggest that Moody's reviews of Spain's Baa3 rating may be extended to late September. The extra couple of weeks this entails is ostensibly to get the audit report on the banks' needs and after the German Court decision on ESM.

The modest uptick in the yen does not reflect the poor economic news as much as the 1.6% decline in the Nikkei. The Nikkei gapped lower following the losses in the US markets yesterday. Today's losses carry the Nikkei to its lowest level since August 7. That the Japanese data were disappointing is an understatement. July industrial production fell 1.2%. The consensus was looking for a 1.7% gain. Household spending fell 1.3% in July. The market expected a 0.3% decline.


The government revised down its assessment of the Japanese economy this week and as the reconstruction spending eases and government incentives to purchase more environmentally friendly car runs it course, further weakness in the world's third largest economy is likely. In turn, this will likely add pressure on both the government and BOJ to take remedial measures.


Lastly, Canadian GDP figures came out in line with expectation with June output rising 0.2% and the year-over-year rate steady at 2.4%. At an annualized pace Q2 GDP rose 1.8%. The consensus had looked for 1.6%, but Q1 was revised to 1.8% from 1.9%, leaving the optics largely as expected. The passing of the event risk has seen the Loonie firm to new session highs.


We continue to believe that the position adjustment that has occurred through most of the month of August is complete or nearly so. We think that there will some disappointment if Bernanke is not more forthcoming that the recent FOMC statement and minutes. We remain concerned that the European debt crisis will intensify again in the coming weeks.

Initial Reaction to Bernanke: USD and US Assets Firm

Posted Friday, August 31, 2012 at 10:48 AM
Marc Chandler


As the draft of Fed Chairman's Bernanke speech at Jackson Hole made the rounds, the US dollar as pared back some of its earlier losses, US yields have eased and equities retraced part of the opening losses.

However, the dollar quickly was sold and many of the major currencies have made new highs on the day, though stocks and bonds are maintaining their initial reactive gains.

Bernanke's speech appears to justify past asset purchase programs. He cited one study that suggests these efforts may have helped boost GDP by 3% and help create 2 mln jobs. He recognizes the risks of additional purchases, but believes those risks are manageable.

He explicitly is not ruling out additional asset purchases as required to support growth and, of course, the labor market, remains a "grave concern".

However, Bernanke is not committing the Fed to a new round of asset purchases at this juncture. He does sketch out the economic challenges, but stops shy of advocating a particular response. Next week's US employment report is still key. On balance, the data since the last FOMC meeting point to stronger Q2 growth than was evident at the time and somewhat better Q3 growth.

Global impulses are also not very favorable. China's data has generally disappointed and the official PMI will be released over the weekend. Falling iron ore and steel prices seem to be more telling than any piece of official data. Japan's economy appears to be slowing from the reconstruction expansion quicker than previously appreciated. Most evidence suggests that the euro zone economy is contracting here in Q3 and that the German economy will be lucky to simply stagnate.

Our general view remains intact and still expect the dollar to recover as the focus shifts back to Europe and we note into the European close, Spanish bonds are getting whacked, with 10-year yields rising over 20 bp to the highest yield since Aug 14. As we noted earlier this week, the credit-default swaps have generally presaged the sell-off in Spanish bonos and are making new multi-week highs too.

While we continue to lean against QE3 at the next FOMC meeting, we also recognize that the dollar has tended to rally after such an announcement is made. That the headlines will read that Berannke does not rule out additional asset purchases is factually correct, but tells us nothing new. Bernanke has never ruled it out. Why should he? Under the Fed's view, it has been successful. With the Fed funds rate near zero, unconventional measures may still be needed. It is unreasonable to expect a unilateral disarmament.

The type of accommodation we expect from the FOMC is in its guidance and continued conduct of Operation Twist. A cut in the interest on excess reserves and/or a new lending facility (which we are sympathetic to) seem decidedly less likely. Even if we are wrong about QE3, the outlook for the dollar may not change. As we have noted countries that have expanded their balance sheets have not necessarily seen their currencies weaken (the euro zone being an exception) and the dollar has tended to rally after an asset purchase program is announced.

Me and my short..
Meeeh. Tried something 'new' for the analysis..

Simply having few Sma/Ema Lines on the chart
i would wait with the entry respectively exit it earlier. As i had 30 pips +

I suggest, go into moving averages. Worth it.
At now, implemented in my trading system.
Why did i ignore it till now ?
Because of to simple and never had a real look on them ?

Six Observations as Week Winds Down

Posted Friday, September 7, 2012 at 6:43 AM
Marc Chandler

http://4.bp.blogspot.com/-OWwaIYwMLw...servations.jpg

There are six observations on the G10 to share ahead of the weekend.

First, the ECB's Outright Monetary Transaction (OMT) scheme has continued to bolster perceptions that officials are moving to reduce tail risk. Dragji's announcement did not differ much in substance from what was leaked the previous day. As was the case prior to this week, it continues to be now. The onus of the initiative is on Spain's shoulders.

There is increase speculated that Spain can formally request EFSF support at the Eurogroup meeting at the end of next week, which in turn is thought to be in sufficient time to negotiate the memorandum of understanding and allow some countries, like Germany's parliament, to authorize the support prior to the large redemption Spain faces in late October. We are more skeptical, especially with Draghi's inclusion of the IMF for conditionality.

Second, the market suspects the OMT operations could first be tried in Portugal, though what it means to have access to the capital markets (another Draghi condition). However, Spain is still key focus and that means that it should do better than Italy.

Third, the ADP data and the rise in the service sector PMI employment index to 53.8 from 49.3 helped lift expectations for the US monthly jobs report. This is important because the employment report is seen as a key, if not decisive factor, for the QE3 at next week's FOMC meeting. We have anticipated private sector jobs growth in line with July and thought that on balance the Fed was more inclined to change guidance than its balance sheet.

Fourth, the UK reported considerably stronger than expected July industrial production figures. The 2.9% month-over-month rise was nearly twice the consensus. Manufacturing jumped 3.2% on the month. The Bloomberg consensus was for a 1.8% gain. However, the optics are better than the substance. The July rise is largely a function of the sharp declines in June, which had been exaggerated by the Jubilee Bank holidays. Leaving aside an Olympic effect in Q3, the UK economy still appears to be stagnating and an extension of the BOE's gilt purchase operation remains the most likely scenario.

Fifth, Germany industrial output was also well above expectations, rising 1.3% on the month with the Bloomberg consensus looking for a flat report. The strength also seems to contradict the more dismal manufacturing PMI reading. Earlier today Germany reported rise 0.5% rise in exports in July and yesterday it reported a stronger than expected 0.5% rise in July industrial orders. While this suggests some greater resiliency in the Germany economy, the optimists are not talking much more than stagnation now.

Sixth, talk that the Swiss National Bank is about to being the cap on the franc to 1.22 from 1.20 at next week's meeting seems misplaced. It seems like too small of a move to justify the expense. The IMF data on Swiss reserves was released earlier today. It shows that the SNB foreign currency holdings rose another CHF10 bln in August. While something on the magnitude of a quarter to a third of this can be traced to valuation adjustments, suggesting the pace of intervention may have slowed, the reserves are approaching 100% of GDP. The recovery of the euro and perceptions of reduced tail risk may be doing the lifting more effectively than the SNB.

I had expected the dollar to find more support for the combination of selling the rumor and buying the fact on the ECB and diminished likelihood of QE3, which I had anticipated. While not inclined to chase the market, only a reversal ahead of the weekend will lend credence to my cause. The kind of reversal pattern looked for so suggest the move that began in late July is over has simply not materialized yet. That said, technicals are still stretched, but not turning.

FX Positioning and Outlook: No Sign aTurn is at Hand

Posted Saturday, September 8, 2012 at 2:00 PM
Marc Chandler

http://3.bp.blogspot.com/-X2ieTC3OpP...0/monopoly.jpg

Key policy makers are preparing new efforts to address the deterioration of financial and economic conditions. This is seen reducing tail risks, which has allowed the rally in risk assets to be extended, and undermined the dollar. China is providing new fiscal support. The ECB announced its new Outright Market Transactions. The disappointing US employment figures increases the risk that the FOMC will go beyond changing its guidance and have balance sheet response. In the first eight months of the year, the US economy has grown an average of 150k private sector jobs a month. During the same period in 2011, the monthly average job growth was 10% higher

Perceptions of reduced tail risks, which in turn have allowed a further extension of the recent moves that have lifted equity markets, rallied the European peripheral bonds, and undermined the US dollar. There are many who are now talking as if a major corner has been turned. We remain suspicious and continue to look for technical evidence that will help signal an end market trends that began 2-3 months ago. Yet to be clear, and anticipate our argument below, such evidence remains elusive.

We remain worried that the market is too complacent about the serious event risk over the coming weeks. Three-month implied euro volatility finished last week below 9%, levels not seen in four years. Three-month implied yen volatility finished last below below 7.2%, the lowest in five years. The S&P 500 volatility (VIX) is within spitting distance of multi-year lows as well. This complacency should be a cautionary note for medium term investors.

The decline in Spanish yields, and no bond auction in the week ahead, may discourage Spain from formally requesting a precautionary line of credit or a full aid package. So, while we expect the German Constitutional Court to find in favor of the ESM (even if a few conditions and admonishments are included), a formally triggering of the new OMT is still likely at least several week away. Spanish Prime Minister Rajoy continues to put much emphasis on domestic political considerations. Unless forced by circumstances, which seem at this juncture unlikely, Rajoy may be loath to do anything that appears to be ceding more sovereignty ahead of the late October election in the his home region of Galicia.


The Dutch hold elections on September 12 and the polls show a tight race between the a resurgent Labour Party and the Liberals. The terms of a new coalition government may take some time to work out. However, what is new is that it appears that an increasing number of voters are tired of the austerity, which more is likely to be needed if the EU targets are going to be reached. Dutch bonds have consistently outperformed German bunds (over the past 3 and 6 months as well as year-to-date). This may be challenged if anti-austerity parties gain an upper hand.

The other major event of the week ahead is the FOMC meeting. With Operation Twist still ongoing, we had anticipated the FOMC to push out its rate guidance into 2015 from late 2014. Our view hinged on a relatively favorable employment report. Some economists can find a silver lining, such as the decline in the unemployment rate to a 8.1% (a full percentage point lower than a year ago) or distortions caused by the auto sector (excluding factory employment, 112k net jobs were created in August after 118k in July), or the preliminary nature of the data (Stone & McCarthy found that August jobs data typically disappoints--75% of the time, and later is revised higher by an average of a little more than 60k).

Nevertheless, on balance, we see the employment report increasing the likelihood of a new round of asset purchases, that will likely include MBS. However, we do not think the Fed is prepared for an open-ended commitment, such as would be entailed by targeting nominal GDP. That said, most of the data being reported for Q3 continues to suggest that the economy is tracking a bit better than the 1.7% annualized pace seen in Q2.

In terms of the US data, the risks of price measures, and that would include imported prices, producer prices and consumer prices, are all on the upside. On the other hand, the US consumption appears to be holding up. The firm auto sales and chain store sales will likely translate into higher retail sales. Retail sales likely roe in August for the second consecutive month after falling every month in Q2.

The week ahead also features Chinese economic data. The Chinese economy may still decelerating so it is difficult to talk about a landing, though we expect signs that it is beginning to stabilize in the period ahead. The $150 bln infrastructure projects that were reportedly approved at the end of last week may dampen speculation of near-term monetary easing. The Shanghai Composite recovered smartly off multi-year lows at the end of last week. Follow through gains are needed to solidify the recovery and sentiment.


Euro: The speculative net short position was reduced by less than a thousand contracts in the holiday-shortened week ending September 4 to stand at 102.3k contracts. Gross longs rose by about 650 contracts to 46.5k. Gross shorts rose by 1.4k, the first increase in three weeks to just below 149k contracts.

The euro has continued to recover off the late July lows. As we noted last week, while our reading of the underlying fundamentals suggests these gains in the euro are counter-trend and corrective in nature. Yet again there is little technical evidence that a top is at hand. We continue to look for some reversal pattern, but none has materialized. The RSI is high but there are no divergences. The MACDs are extended but have yet to turn. The 5-day moving average is above the 20-day. The $1.2830-40 is the next immediate target. This corresponds to the 200-day moving average, which the euro have not closed above here in 2012. Beyond there the $1.30 area beckons.

Given the heightened risk of a balance sheet response to the recent economic weakness by the Federal Reserve, barring the German Constitutional Court knocking down the ESM, which we think highly unlikely, especially given parliament's approval and the speculation that Spain may formally request aid at the Eurogroup meeting late in the week, the dollar may remain under pressure. That said, some cautiousness by short-term momentum participants is in order. The euro closed above the upper end of its Bollinger band (2 standard deviations above the 20-day moving average, for the first time since late February, which marked the year's high. Initial support on pullback is likely to be found near $1.27.


Yen: The speculative net long position increased by about 3.4k contracts to 24k. Longs rose 1.6k to 55.1k contracts and the shorts were pared by almost 900 contracts and stand at 31.1k.

The heightened prospect of QE in the US and the broad dollar weakness sparked by the disappointing August employment report lifted the yen to its best level against the greenback in a month. The dollar, in effect, transversed its entire recent range JPY78-JPY79 before the weekend. A break could signal a quick test on the early June low near JPY77.65. It probably will take a move closer to JPY77 to get Japanese officials to up their verbal intervention.

The domestic impulses from Japan are deteriorating. The reconstruction lift is fading and the parliamentary maneuvering by the two main political parties is reminiscent of Washington and this is impacting the smooth financing of Japan's budget deficit. In terms of foreign policy, tensions are running high between it, South Korea and China. Yet it seems likely in terms of the direction of the yen, European and US developments are more important.


Sterling: The net speculative position swung back to the short side after being long in the last two weeks of August. The longs were trimmed by almost 600 contracts to 41.8k contracts. The shorts increased by 8.3k contracts to 48.7k. This produced the net short speculative position of 6.9k contracts.

Recent data suggests that the UK economy may be enjoying slight positive growth here in Q3. Nevertheless, an extension of its gilt purchase operation is likely in Q4. Despite the ongoing QE, sterling has put in a strong showing and moved above the $1.60 level for the first time since mid-May. The weekly close above $1.60 brings the $1.62 area as the next important target.

Sterling bottomed on June 1 and has appreciated by 5% since then. While we continue to believe that US fundamentals are superior and that a weaker sterling will be part and parcel of a recovery in the UK economy, as was the technical condition of the euro, so too with sterling. There is simply no compelling evidence that a top is in place.


Swiss franc: Speculators on net continue to run a small short franc position. It increased marginally to 13.1k contracts from 11.5k the previous reporting period. Longs slipped 1.7k to stand at 9k. The shorts were reduced by less than 30 contracts to 22.1k.

Speculation that the Swiss National Bank may lower the cap on the franc against the euro to CHF1.22 from CHF1.20 may have brought some fresh interest in the franc. We do not expect this to be delivered when the SNB meets on September 13. If it is event discussed, we suspect it will be deemed potentially too expensive and the return too small to be seriously considered. The next important area for the dollar comes in the CHF0.9370-CHF0.9400 area. Technically, a convincing break of this area could signal another 1-2% decline in the dollar.


Canadian dollar: The net long speculative position increased by 10% to 66.6k contracts. It is the largest net long position since early May. Recall that in the second half of July, the net speculative position was short. It has been building since. The gross longs added 2.7k contracts to 89.3k, while the shorts were reduced by about the same amount to stand at 22.8k.

The Canadian dollar finished last week at its best level of the year against the greenback. Positioning continues to stretch an the domestic fundamentals, including softer data, less chance of a BoC rate hike, and what may be a reinvigorated Quebecois movement continues to warn of a pending shake out. Yet there is nothing the range of technical factors that are encouraging picking a top to the Loonie. Resistance for the US dollar is now seen in the CAD0.9840 area.


Australian dollar: The net long speculative position fell for the second consecutive week. The roughly 20% decline took the net position to 62.4k contracts. This was mostly a reflection of profit-taking as some 12.3k longs were cut; still leaving almost 112k contracts. Top picking was limited as the shorts increased by a more modest 3.4k contracts to 49.4k.

The technical outlook for the Australian dollar has improved. From mid-August through the middle of last week, the Aussie lost almost 4% against the US dollar. This was fueled by concerns about the Chinese economy, and falling iron ore and steel prices. However, China's new infrastructure initiative and the prospects of QE in the US, as well as the perception that the ECB had reduced tail-risk helped the Australian dollar bounce back strongly. The next important chart level comes in near $1.0450. It probably takes a break of the $1.0250-70 to undermine the new found strength.


Mexican peso: Similar to the Australian dollar, the net long speculative Mexican peso position fell for the second consecutive week. The decline was a more modest 3% to 90.9k contracts. The longs were trimmed by 2.7k contracts to 101.5k. The shorts rose by 1k to 10.6k contracts


The dollar closed below the MXN13.0 level before the weekend for the first time since early May. The next level of chart support comes in in the MXN12.88-MXN12.90 area. Since August 30, the dollar has lost almost 4% against the peso. The decline in US interest rates, as a function of some soft data (e.g. the employment report) and the prospects of QE, plus the stronger than expected increase in US auto sales and the chase for yield seem to be the main drivers of the peso's strength. The MXN13.15 area may cap initial dollar bounces.

Hi Tsar,

USDx 15 M TF, I'm watching an see at the 79.3x area for another reversal of price .....

Cheers

USDX updated .... just wait and see.... is the valid area to reversal price ...

cheers

Multi Pairs FX in Bar Trend :

Dynamic Trend : Looking for Any Pairs Trends, from H4 to M1 time frime.
Daily Dynamic : Looking for Any Pairs Trends, from D1 to D4 time frime.

Pounds in H4 Chart...

EURO in Daily Chart...

Multi Levels for POUNDS in H1 time frime

Fri September 14, 2012

GREEN Levels Colour (with Prices) is SMALL Levels move.
PUPLE Levels Colour (with Prices) is MEDIUM Levels move.
BLUE Levels Colour (with Prices) is BIG Levels move.

And... Broken Lines Colour (without Prices) is IMPORTANT Levels.

Multi Levels for EURO in H1 time frime

Fri September 14, 2012

GREEN Levels Colour (with Prices) is SMALL Levels move.
PUPLE Levels Colour (with Prices) is MEDIUM Levels move.
BLUE Levels Colour (with Prices) is BIG Levels move.

And... Broken Lines Colour (without Prices) is IMPORTANT Levels.

It's not Simply QE3

Posted Friday, September 14, 2012 at 6:00 AM
Marc Chandler



http://3.bp.blogspot.com/-wn5qPJT62H...%2BReserve.jpg

The outcome of the FOMC meeting is not just a new round of quantitative easing. What the Fed announced represents a new chapter in its policy response. The first distinguishing aspect of its decision is the open-ended nature of it. While it has not indicated formal labor market targets, and indeed Bernanke shied away from such at his press conference, the FOMC committed itself to expanding its balance sheet until there is substantial and sustained improvement in the labor market.

This means that there won’t be a QE4 or a QEn as some pundits have forecast. Instead, the FOMC now is willing to extend its asset purchases indefinitely, conditioned on the improvement in the labor market. This means that unless the labor market shows significant improvement in the coming months, the Fed is likely to increase its asset purchases when Operation Twist is completed at the end of the year.

The second distinguishing characteristic of the Fed’s decision is that there is a new element of an American version of the UK’s funding-for-lending scheme. The Fed will focus its new long term asset purchases not just on mortgage-backed securities in general, but will concentrate its efforts on newly issued to to-be-announced MBS. It is expected (hoped?) that this will generate more mortgage issuance. As banks sell their MBS holdings to the Fed, it can replace them with new MBS. This is consistent with Bernanke’s repeated calls on Congress and the government to deliver mortgage relief.

Initially, the fact the Fed committed itself to buying $40 bln of MBS a month may have seemed disappointing given that the QE2 had the Fed buying $600 bln over 7-8 months. However, this is mitigated by the likelihood that when Operation Twist is complete, the Fed increases the amount of MBS it buys. In addition, this level of purchases, coupled with the ongoing recycling of Treasury proceeds means that the FOMC is committed to buying more than half of the anticipated new MBS issuance.

There may have been some disappointment too that the Fed extended its rate guidance from late-2014 to mid-2015. However, this may have more to do with the Fed’s forecasting horizon and it was only with the new forecasts that the Fed staff event ventures a look at 2015. It seemed clear from Bernanke’s press conference that should the economy continue to disappoint, extending the guidance further out remains an option.

Given the ECB’s committed to “do whatever is necessary” and its willingness to buy an unlimited amount of government bonds up to 3-years in duration, one may see some similarities with the Fed’s decision. However, there are a few key differences to keep in mind. First, the “unlimited” nature of the ECB’s pledge is more marketing than substantive. There is a fixed amount of debt with 3-years or less duration that Spain has, for example, and reports indicate that the ECB will use moral suasion to prevent a country from gaming the rules by issuing proportionately more in then tenor.

Second, the ECB has not bought a single bond and it may not unless a country (Spain?) requests, but given the decline in yields and various other considerations, Prime Minister Rajoy continues to seem to be in no hurry to seek such support and Italy seems to remain even further away from asking. In contrast, the Fed’s policy will be implemented nearly immediately.

Third, the ECB, perhaps because of its largest and most important member, is more sensitive to the distinction between monetary and fiscal policy then the Federal Reserve seems to be. Arguably, a more aggressive fiscal policy and congressional action to provide mortgage relief would have reduced the Fed’s need to do so. In this regard, the US seems more pragmatic than Europe.

Lastly, the Fed’s actions, and to a lesser extent the ECB’s OMT increase pressure on the BOJ extend its own QE at next week’s (Sept 18-19) meeting. Deflationary forces have not been arrested and the weakness in foreign demand has knock-on effects on Japanese industrial output. The strong yen exacerbates these negative influences. Yet, Japan would likely find little support for material intervention in the foreign exchange market from its G7 peers.

Great Graphic: Italy's GDP

Posted Friday, September 14, 2012 at 8:58 AM
Marc Chandler

http://4.bp.blogspot.com/-u1HugPkaNH...lay+growth.jpg


Here is a Great Graphic from the Wall Street Journal. It shows the poor record Italy has had since 2000 in generating growth. What is does not show is that Italy still appears to be losing competitiveness. Look at the August inflation numbers for a snap shot. Italy's CPI is up 3.2% on a year-over-year basis. This is the highest in the euro zone and compares with the region's 2.6% pace. Germany and France reported 2.1%. Spain's CPI is 2.7%.

In a broader sense, Italy's unit labor costs rose by nearly a third since 2000. While the unit labor costs of Greece, Ireland, Portugal and Spain have been trending lower since 2008, Italy's still appears to be rising.

While it seems fashionable to believe that the combination of Draghi's plan, the German Constitutional Court ruling in favor of ESM has turned the corner, color me skeptical. One WSJ article quotes a currency strategist suggesting that Europe's dirty laundry has been aired (but not America's), I am remain less convinced. Ultimately, Europe is still wedded to austerity. The Dutch election may have been a setback for the euro-skeptics, but there is no end in sight for austerity. This has political and social implications on top of condemning Europe to prolonged slow growth if not stagnation.

The open-ended QE announced by the Fed underscores the commitment to a growth strategy by the US and the differences with Europe. I think that in the medium and longer term, the US better growth prospects will be rewarded by investors. In the immediate term, as I have been acknowledging (like here and here), my reading of the dollar's technical condition warned against picking a bottom quite yet. I continue to look for some reversal pattern or indication that a low is near.

The fiscal cliff is indeed looming and Moody's reminded us this week of the rating implications, but this is not what the market appears to be trading on. Despite the partisanship about fiscal excesses under this Administration, the government sector has been and continues to be a drag on US growth. The federal government simply did not spend enough money to offset the contraction on state and local levels.

Multi Pairs FX in Bar Trend (Updates) :

Dynamic Trend : Looking for Any Pairs Trends, from H4 to M1 time frime.
Daily Dynamic : Looking for Any Pairs Trends, from D1 to D4 time frime.

gu setup

Great Graphic: European Unit Labor Costs

Posted Friday, September 21, 2012 at 4:00 AM
Marc Chandler

http://4.bp.blogspot.com/-Rewec7nwXc...herals_ULC.png

This Great Graphic comes from the FT Alphaville. It was taken from SocGen's Cross Asset Research/Economics group and shows the development of unit labor costs in the euro area since 2000. It shows improvement in the competitiveness of Greece, Portugal, Ireland and Spain.

However, Italy has continued to move in the wrong direction. That Italy is still experiencing rising unit labor costs may not be that surprising, even if disappointing. Most interestingly, French unit labor costs are also continuing to rise. We don't expect the European debt crisis to be over until it reaches France in some fashion.

In the context of debt and deficits and competitiveness, France is arguably more a Mediterranean county than a Northern European country. Unit labor costs in the euro area as a whole are rising and this is appears to be driven by Germany and France. Germany remains highly competitive; France not so much.

One of the issues brought out in Soc Gen's research, drawing from Eurostat data, is that the improvement in the periphery unit labor costs appear to be driven from what Eurostat calls "non-business" wages. Non-business includes education, health services and public administration. This means increased competitiveness can be traced to a large extent to civil service reform. This is one of France's Achilles heels, so to speak.

FX Outlook and Positioning: Getting Tired?

Posted Saturday, September 22, 2012 at 11:06 AM
Marc Chandler

http://3.bp.blogspot.com/-r1r4cqwgMa...200/chutes.jpg

The days ahead will help clarify whether the US dollar's somewhat firmer tone last week was simply corrective in nature, before a new leg lower, or the carving out of a bottom of a downtrend that began in June against most of the major currencies and July for the euro.
The key may not lie with the economic data. The important steps announced by the ECB, Federal Reserve, and BOJ has stolen the thunder from the near-term economic performances. Instead, we suspect politics and positioning may be more important.

As we have noted, the signals coming from European officials indicate that there has been an important climb down from pushing Greece out of the monetary union and the indications from intrade.com, where the odds a country leaving the euro zone this year has fallen to the lowest in at least two years, suggest investors recognize this.

Exactly how the proverbial circle can be squared--how Greece's debt outlook can be judged to be on a sustainable path--is not clear. Yet this is not the top issue on the agenda. In fact, since earlier this month, European officials appear to be playing for time, and not just for the mid-Oct EU summit, which had previously seemed to be the case. Instead, expectations have been massaged and now a November decision is more likely.

Instead of Greece, the political spotlight in Europe is on Spain. There are two conflicting impulses. On one hand, Spain is reportedly engaged in negotiations to design a structural reform package that could be adopted prior to formally asking for assistance that would in fact meet the Troika's conditionality. These structural reforms, which may not include new taxes or spending cuts, could be announced toward the end of next week.

On the other hand, with the decline in yields and recent bond auctions that clearly demonstrate that Spain has not be frozen out of the capital markets, and the sense of urgency has slackened. Germany's finance minister reportedly sees no need for Spain to request aid. Some press reports also suggest the pressure that Italy was applying to Spain to seek relief, to help stabilize Italian yields, has also lessened. We do not anticipate a formal request by Spain until mid-October at the earliest.

At the end of next week, the three month review of Spain's financial system is expected to be completed with the outcome being a clearer understanding of the banking system's recapitalization needs. Spanish officials insist that the 100 bln euro backstop already granted will prove more than sufficient. There is some desire to use the "excess" for other purposes, but this will prove contentious.

In the US, President Obama has enjoyed a significant post-convention bounce. If the poll numbers in the swing states is maintained over the next week or so, it would imply more than a post-convention bounce is at work. While we have suggested that Obama's re-election was the most likely scenario, we recognize that in terms of the fiscal cliff, that the presidential race is only half the story.

The key issue is whether Obama's "coattails" will be sufficient for the Democrats to capture the House of Representatives. If this did happen, it would increase the chances of a compromise to resolve the fiscal impasse. The latest polls and projections suggest this is unlikely and that the Republicans will maintain a small majority. This in turn worries businesses and investors that the country is still moving headfirst toward the fiscal cliff.

In this ugly contest, we suspect that Europe remains uglier. The FOMC decision on QE+ was not spurred because the US was in danger of slipping into recession, but because growth was not fast enough (to reduce the unemployment rate quick enough). The euro area (and Japanese) economies appear set to contract in the current quarter. The US remains one of the few high income countries in which its growth rate is above, albeit slightly, bond yields.

We continue to suspect the position adjustment that weighed on the dollar in Q3 is over or nearly so. Many fund managers began the quarter underweight Europe and were forced to chase the market or under-perform benchmarks. As we note below, there has also been an adjustment by speculative participants.

Last week, we noted that the technical condition of the dollar against most of the major currencies was still poor. The exception was the Canadian dollar, and to a less extent the Australian dollar. The price action over the past week has seen the improvement of the dollar's technical outlook broaden to include the British pound and the Mexican peso.

Given the current correlations, a recovery in the US dollar against those "risk-on" currencies, would likely occur in a weakening equity environment. The S&P 500 appear to be carving out a near-term top. The close before the weekend was poor (on the session low). A break of the 1450 level would support this "topping" view and could spur a move toward 1400. Of note, the S&P 500 has recently typically fallen at the start of the week. In eight of the past 10 Mondays (though used Tuesday Sept 4 due to the Labor Day holiday on Monday Sept 3), the S&P 500 has fallen.
Euro: The net short speculative euro position was reduced in the week ending September 18, continuing the trend that began in early June. At 73.5k contracts, down 22.k on the week. It is the smallest net short position since last November and has been cut in half in the past eight weeks.

This has been primarily a function of short covering. Another 14.5k contracts were reduced to a still substantial 122.3k. This is the smallest since April. However, bottom pickers and now momentum traders have also been accumulating a long position. The gross longest increased by 5.6k contracts and at 48.8k, is the largest since June.

The euro spent most of last week paring back gains. It was the worst performing major currency, slipping 1.1% against the dollar. However, on the pullback, a key area technically that we identified last week ($1.2900-20) held and off that the euro recovered about 50% on Friday what it had lost on the week until then.

While the technical tone has weakened, we still do not see a strong sell signal for short-term participants. Medium term participants may reduce euro exposure or short dollar hedges into euro strength. A move now back above $1.3080 would could see another cent advance.


Yen: The speculative net long position was sliced by more than half to 15.5k from 32.8k contracts. This was largely a function of long liquidation. The gross long position was cut by about a third to 41.5k contracts. The gross shorts were trimmed 2.1k contracts to 26k.

The Japanese yen was the strongest currency of the week, gaining about 0.25% against the dollar, despite the mid-week QE announcement by the BOJ that both increased purchases and extended the time of operations until the end of next year (as well as some other operational adjustments).

The dollar was rebuffed on the post-BOJ advance above JPY79 and the rule of alternation was followed and the yen finished the week near the lower end of the recent range near JPY78. Just like the dollar overshot to the upside briefly, it could undershoot to the downside, with JPY77.80 seen as support.


Sterling: The speculative market swung hard to the long side in the days before sterling made a new high for the year in the spot market on September 21. The net speculative position switched to the long side after being short for a couple of weeks and it is the largest net long position since May. About 15.5k short contracts were covered, leaving 38.2k contracts still short. The longs were increased by 3.7k contracts to 52.6k.

Sterling managed to eke out a minor gain against the dollar last week of less than 0.1%. With the rejection of the new high for the year, briefly above $1.6300 and the close near the low of the day on Friday, the technical tone weakened considerably. However, a break of the $1.6180-$1.6200 area is needed to give more credence to a downside correction that could lead to a return to the $1.6000-40 area (initially). New longs seem to be in weak hands, but some players may leg into a short euro-sterling cross position in anticipation of a euro top.


Swiss franc: The speculative net short position was halved to 4.5k contracts. Gross longs increased by 2k to 23.6k contracts. Gross shorts were cut by 2.5k contracts to 18.2k. The dollar has built support in the CHF0.9230 area, but unless it can advance beyond the CHF0.9420 area, a consolidative phase is unfolding rather than an outright correction.


Canadian dollar: The speculators in the futures market still cannot get enough Canadian dollars even though they had already a accumulated a record long net and gross position. In the most recent reporting period, the net long position rose another 10k to 112k contracts. Recall the speculative net position was short as recently as the end of July and it has doubled in the past four weeks. The gross longs rose another 10.1k to 126.7k contracts. Top picking was minimal as the gross shorts increased by a little less than 125 contracts.

Last week, we thought the Canadian dollar looked most vulnerably technically. We wanted to the see the US dollar rise above the CAD0.9780-CAD0.9800. It stalled out near CAD0.9815 and pushed back to CAD0.9725 support area. Barring a convincing break of this area, the US dollar still appears poised to trade higher.


Australian dollar: The net long position rose by less than 1k contracts to 69.2k contracts. The little changed net position was a function of both new longs and shorts coming into the market in roughly equal proportion. The gross longs rose 9.5k to 117k contracts. The top pickers increased the shorts 8.5k contracts to 47.8k.

The Australian dollar lost nearly 0.9% last week, but it managed to recover smartly off the $1.0370 low on Thursday to the $1.0530 area on Friday. However, technically the Australian dollar has to prove itself. It needs to rise above $1.0530 in the coming days or will likely experience another leg lower.


Mexican peso: The net speculative long position was trimmed by 4k contracts to 118k. Top pickers and trend followers saw opportunity. The gross longs rose by about 10% to 140.4k contracts. The gross shorts jumped to 22.2k contracts from less than 5k in the prior week.

The technical tone of the peso has deteriorated. Barring a break of the MXN12.80 area, the greenback appears poised to correct higher with initial potential toward MXN13.05.

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Hi ALL,

Today, I share Signal Trend Indicators... the Best from my Indies Collection. OLD Programs, btw still Worked Well

1. DIGISTOCH (located in top Sub Window)

2. GMACD Trend Signal (located in the bottom Sub Window)


NOTICE :
GREEN Colour mean Bullish Trend & RED Colour mean Bearish Trend.



All indicators worked in Multi Time Frime
Hopefully useful...



Best Regards,
Tsar