GBP/USD and EUR/USD

good morning!

euro$
first target number 2870 met main number is 2965 and 3031

pound$

first number still to be met at 6055 main number is 6140/45

gold

first target number is 1730 and we are currently heading towards it

GL

OBAMA WINS RE-ELECTION


http://s4.reutersmedia.net/resources...1107073943.jpg




WASHINGTON | Wed Nov 7, 2012 4:21am EST
By Steve Holland and John Whitesides

WASHINGTON (Reuters) - President Barack Obama won a second term in the White House on Tuesday, overcoming deep doubts among voters about his handling of the U.S. economy to score a clear victory over Republican challenger Mitt Romney.

Americans chose to stick with a divided government in Washington, however, by leaving the U.S. Congress as it is, with Obama's fellow Democrats controlling the Senate and Republicans keeping the House of Representatives.

After a long, bitter and expensive campaign, the 51-year-old Obama began trying to bring Americans together in a victory speech before thousands of cheering supporters in Chicago. Accused by Romney throughout the campaign of taking a partisan tone, Obama vowed to reach out to Republicans in his new, four-year term.

"You voted for action, not politics as usual," Obama said, calling for compromise and pledging to work with leaders of both parties to reduce the deficit, to reform the tax code and immigration laws, and to cut dependence on foreign oil.

The nationwide popular vote remained extremely close with Obama taking about 50 percent to 49 percent for Romney after a campaign in which the candidates and their party allies spent a combined $2 billion. But Obama comfortably won the electoral votes needed in the state-by-state system used to choose U.S. presidents.

Obama scored impressive victories across the country, so much so that the big build-up over Ohio, Virginia and Florida fizzled. Obama reached the 270 electoral votes needed for election even without those three states, rolling up wins in Democratic strongholds and carrying Nevada, Iowa and Colorado.

In the end, he also won Ohio and Virginia and was ahead in Florida, where votes were still being counted.

Romney, the multimillionaire former private equity executive, came back from a series of campaign stumbles to make it close after besting the president in the first of three presidential debates.

The 65-year-old former Massachusetts governor conceded in a gracious speech delivered to disappointed supporters at the Boston convention center.

"This is a time of great challenge for our nation," Romney told the crowd. "I pray that the president will be successful in guiding our nation."

He warned against partisan bickering and urged politicians on both sides to "put the people before the politics."

Obama told his crowd he hoped to sit down with Romney in the weeks ahead and examine ways to meet the challenges ahead.

The same problems that dogged Obama in his first term are still there to confront him again. He faces a difficult task of tackling $1 trillion annual deficits, reducing a $16 trillion national debt, overhauling expensive social programs and dealing with a gridlocked Congress that kept the same partisan makeup.

'FAILURES OR EXCESSES'

Senate Republican leader Mitch McConnell did not sound like he was willing to concede his conservative principles, in a sign of potential confrontations ahead.

"The voters have not endorsed the failures or excesses of the president's first term, they have simply given him more time to finish the job they asked him to do together with a Congress that restored balance to Washington after two years of one-party control," McConnell said.

The result eliminates the prospect of wholesale repeal of Obama's 2010 healthcare reform law but it still leaves questions about how much of his signature domestic policy achievement will be implemented.

The immediate focus for the president and Congress will be to confront the "fiscal cliff," a mix of tax increases and spending cuts due to extract some $600 billion from the economy barring a deal with Congress.

Obama, America's first black president, won a new term by convincing voters to stick with him as he tries to reignite strong economic growth and recover from the worst recession since the Great Depression of the 1930s. An uneven recovery has been showing some signs of strength but the country's 7.9 percent jobless rate remains stubbornly high.

A DIVIDED CONGRESS

Democrats kept control of the 100-member Senate, seizing Republican-held seats in Massachusetts and Indiana while keeping most of those they already had, including in Virginia and Missouri.

Republicans remained in control of the 435-member House, ensuring Congress still faces a deep partisan divide as it turns to the year-end "fiscal cliff" and other issues.

"That means the same dynamic. That means the same people who couldn't figure out how to cut deals for the past three years," said Ethan Siegel, an analyst who tracks Washington politics for institutional investors.

While the Senate result was no surprise, Republicans had given themselves an even chance of winning a majority, so the night represented a disappointment for them and was in part the self-inflicted result of internal battles.

Had Republican Richard Mourdock - a favorite of the conservative Tea Party movement - not defeated veteran moderate Senator Richard Lugar in Indiana's primary, for example, that seat might have stayed in Republican hands instead of being won by Democrat Joe Donnelly. Mourdock drew criticism for calling pregnancy from rape something God intended.

Missouri Senator Claire McCaskill, who also won on Tuesday, had been considered a vulnerable Democrat until another Tea Party favorite, Todd Akin, won the Republican primary. Akin stirred controversy by saying women's bodies could ward off pregnancy in cases of "legitimate rape.

Democrat Elizabeth Warren, a law professor who headed the watchdog panel that oversaw the government's financial sector bailout, defeated incumbent Massachusetts Republican Senator Scott Brown.

Former Maine Governor Angus King won a three-way contest for the Senate seat of retiring Republican Olympia Snowe. King ran as an independent, but he is expected to caucus with Democrats in what would amount to a Democratic pick-up.

Democrats were also cheered by several state referendums: Maryland voters approved same-sex marriage and a similar measure in Maine and Washington State appeared on track to pass as well - marking the first time marriage rights have been extended to same-sex couples by popular vote.

In addition, Wisconsin Democratic congresswoman Tammy Baldwin became the first openly gay U.S. Senator, defeating Republican former governor Tommy Thompson.

U.S. stock futures slipped, the dollar fell and benchmark Treasuries rose after Obama's victory, which investors took to mean no dramatic shift in U.S. economic policy.

Markets had generally expected Obama to win, with the general view that a victory for the Democrat would favor bonds, as he is perceived to favor low interest rates, while Republican challenger Mitt Romney was broadly seen as more business-friendly and supportive for equities.

International leaders offered their congratulations. Israeli Prime Minister Benjamin Netanyahu, who has a testy relationship with the U.S. leader, vowed to work with Obama "to ensure the interests that are vital for the security of Israel's citizens.

A spokesman for Mohamed Mursi, an Islamist who is Egypt's first freely elected president, said "we hope the newly elected U.S. administration will work to achieve the interests of both the American and Egyptian people.

British Prime Minister David Cameron said Britain and the United States should make finding a way to solve the Syrian crisis a priority following Obama's re-election.

(Additional reporting by Jeff Mason in Chicago, Patricia Zengerle in Boston, Edith Honan in New York, Brendan O'Brien in Milwaukee, Dave Warner in Philadelphia, Philip Barbara in New Jersey, Matt Spetalnick, Lisa Lambert, Susan Heavey, Thomas Ferraro, Susan Cornwell, Anna Yukhananov and Roberta Rampton in Washington; Writing by Steve Holland and John Whitesides; Editing by Claudia Parsons and Will Dunham)


Source : Reuters

ECB Preview: Watch Greece and Spain

Wednesday, November 7, 2012 4:30 AM
Marc Chandler

http://1.bp.blogspot.com/-RwNzmje7IX...y%2Bdraghi.jpg

The ECB is not likely to cut interest rates at Thursday’s council meeting. The focus, as is often the case, will be on the press conference. Here two countries will likely dominate the discussion Greece and Spain.

In recent weeks there seems to be greater disagreement among the Troika on how to address the obviously unsustainable Greek debt burden.

The IMF says the official sector should take a haircut, but not it. The ECB refuses to, citing legal constraints, as a loss could be seen as a subsidy/transfer to Greece. That leaves the EU and individual countries, but Germany is steadfastly opposed to any official sector losses.

Draghi may be queried on the ECB’s willingness to forgo profits or allow Greece to buy them back at cost or some other scheme to reduce Greece’s debt burden. Hopefully a reporter will ask about the ECB’s willingness to accept more Greek T-bills as collateral, if needed, until the Troika report.

After dying down in Q3, the topic of a Greek exit has resurfaced recently. It is not the only place. There has been a thoughtful (even if not ultimately persuasive) op-ed in the Financial Times advocating a German exit. The head of what appears to be the second largest party in Italy (5-Star) has questioned whether Italy can afford to remain in EMU and advocated a referendum on the issue. Redemonination risk is like toothpaste squeezed out of the tube: once out, it is difficult to push it back in.

Separately, Spain’s dilemma is likely to be addressed. Senior Spanish officials continue to press for more details about conditions. A subtle shift has taken place. These conditions initially referred to the terms of the aid—the kind of policies and other adjustments as the necessary conditions for the assistance—but now refer to the kind of commitment from the ECB.

ECB officials are clear. They do not want to eliminate the spread or premium that Spain pays over Germany. Part of the premium reflects country specific risks and serves as the necessary pressure to ensure officials regain investor confidence. Spain’s Rajoy is not yet convinced that the ECB would push rates much lower than prevailing rates.

The announcement effect was worth some 250 bp at the 10-year sector and 400-435 bp in the 2-year sector. Spain pays about 425 bp more than Germany for 10-year money. This is down from a peak of near 570 bp. The nominal premium may be flattered by the 150 bp by inflation differentials. Shortly before the ECB meeting, Spain will be selling a new 5-year benchmark bond. This is the longest maturity it is issuing for nearly 18 months. Its reception may be more important than the ECB meeting itself.

Great, so what do u think right now? (Buy/Sell) EURUSD and GBUSD

he's bulish on both

read his next numbers

Yes I did, does he mean I can buy till reach to the target in both?

if you are here on ff to take trades from other peoples views then you are going to lose your money

these are views of one person only his views but at same time it might be his trades.

i would consider his views only and try to come up with yours as you alone will know if you are right or wrong....

look this is my view at the moment but maybe his is for 3 days from now...no one wrong until the time has passed then we can see who was right or wrong....trade smart brother

http://www.forexfactory.com/showthre...79#post6171379

GBP is following EUR but with low speed and intensity.

With Europe Back in Spotlight Investors Run for Cover

By Jeff Macke | Breakout


America's post-election glow didn't even make it to the opening bell. After meandering near the flat-line all night markets were slammed when ECB President Mario Draghi said he was anticipating weakness in the European economy for the foreseeable future. Draghi's remarks came ahead of efforts by Greek officials to pass yet another austerity package in order to avoid economic collapse. In the face of such uncertainty traders decided discretion was the better part of valor and sold off stocks by more than 2% in early trading.

David Lutz, managing director and head of ETF trading at Stifel Nicolaus, thinks investors better get used to negative news out of Europe. "We're really coming down to the end of the game right now to see if Greece is going to be staying in the eurozone and getting some capital," he says.
Greek unrest brings back the negative cycle that dominated 2011 --a U.S. recovery stymied by our main trading partner not just slumping economically but potentially ceasing to exist in current form. More discouraging still, Lutz says Greece is only 3/4 of the way through a process that has lasted years already.

Now as it was last year, Germany holds the key. The German economy has been on a very slow descent into a recession for more than a year. Having the eurozone intact has been to Germany's benefit as long as exports remained strong. Should the German economy going into a free-fall, German officials are unlikely to be able to keep selling the citizenry on the idea of subsidizing Greece.

In the near term Lutz is watching the ECB tomorrow for evidence that the nascent central bank is willing to ease rates. The Street isn't expecting such stimulus, but with inflation fears somewhat mitigated and economic data going south, an incremental move would be welcomed.

There isn't a final deadline for when Europe makes a definitive decision regarding Greece or, for that matter, the rest of the PIIGS. The efforts to kick the can down the road are all about buying time for the economic cycle to kick in and bail out Europe organically. As evidenced by today's sell-off, Wall Street isn't a patient place.


Source : Yahoo!

Wall Street Casts Its Vote: 'The Market Is Going Down'

Published: Wednesday, 7 Nov 2012 | 1:32 PM ET
By: Patti Domm - CNBC Executive News Editor


Fears that President Barack Obama’s re-election could send the U.S. economy and country over the "fiscal cliff" helped trigger a major stock market sell off and sent investors into the safety of Treasurys.

http://media.cnbc.com/i/CNBC/Section...TES/obama4.jpg


With a wary eye on Europe's continuing debt drama, investors also reacted to warnings, first from Fitch, then Moody's that the rating agencies stand ready to cut the U.S. triple A credit rating if responsible fiscal actions are not taken. Standard and Poor's already took action on the rating in 2011.

(Read More: Debt Threats From Ratings Agencies)


“The market is going down. The market does not want another four years of Obama. It does not want these tax hikes on a fragile economy,” said Peter Boockvar, Miller Tabak strategist. “We have an economy that’s barely staying above recession. Europe’s problems are deepening. Now we have the prospect of higher taxes.”

Boockvar pointed out that the Treasury's auction of $24 billion in 10-year notes at 1 pm Wednesday was surprisingly weak. The yield was 1.675 percent, and the bid to cover, at 2.59, was below the 12-month average.

(Read More: Treasurys Still Rally Despite Weak Auction)


“I can only speculate. We know a dovish Fed will be with us for another four years, with all the money printing and dollar debasement it brings. It was a squishy auction,” he said.

The stock market selloff, with the Dow down more than 2 percent, was the second worst post election sell off since the late 1940s. The worst was in 2008, when Obama was first elected and the financial crisis was in full swing. That day, the Dow declined 5 percent.

(Read More: Stocks Dive 2% as Dow and S&P Skid)


Wall Street had favored Romney and the Republican ticket in part because it preferred their approach of retaining tax cuts, and making spending cuts. The Obama Administration favors raising taxes on the richest Americans, and also increasing capital gains and dividend taxes.

The fiscal cliff is the dual expiration of Bush-era tax cuts and the beginning of automatic spending cuts that take place starting Jan. 1 if there is no action by Congress. The spending cuts were agreed as part of the Congressional compromise on the debt ceiling and were viewed as so onerous that they would force Congress to act.

"I really think that we are going to see some pretty signifiant volatility that enters the market as we deal with this uncertainty back agian about the fiscal cliff and about the Administration and what theyr'e going to do with tax increases on rich people and potentially on dividends and capital gains," said Jeff Gundlach, CEO of Doubleline Capital, who appeared on "Fast Money Half-Time Report."

Bond yields fell as investors looked for a safe haven. The 10-year yield fell to 1.63 percent, well below the 1.75 percent it was at on Tuesday.
"The bond market is making a comment here," said CRT Capital chief Treasury strategist David Ader, in a note.

Ader said the fiscal cliff issues will impact already sluggish GDP growth. "That's 'good' for rates and keeps the Fed easy," he noted, and ultimately when rates rise, it would hopefully be offset by an improving fiscal story and less accommodative bond market.

Markets are looking for an immediate spirit of compromise. Already on Tuesday, Speaker John Boehner said that voters made clear there is no mandate for higher taxes, by keeping Republicans in control of the House.

“This doesn’t’ look like the government coming toward the middle to me. A divided government with hardened positions. Who knows, maybe the president wakes up and says my political career is over and he wants to be the great healer,” said Barry Knapp, head of equity portfolio strategy at Barclays.

“I think the government looks very polarized, and the probability of going off the fiscal cliff goes up, and the outlook or the market looks negative. I don’t see any silver lining in it,” said “I clearly thought that a status quote election was negative,” Knapp said. “We’ve had business confidence falling sharply. We’ve had capital spending contract. You can see it in the performance of tech stocks and industrials and in corporate earnings, and I think this is a negative outcome.”

Ader said there may ultimatley be compromise, along the lines of Bowles-Simpson, a bipartisan plan to balance tax increases and spending cuts.
"This election admonishes the GOP, make no mistake, and perhaps has sobered Democrats as well," he wrote. "...I think he'll (Obama) be more conciliatory and more inclined to follow the bipartisan Bowles Simpson plan and expect the GOP conciliators too, will want to achieve more than simply being the petulant party to dig in its heels and achieve nothing."

(Read More: Get Ready for Cheap Money 'Run Amok': Rogers)


The U.S. was downgraded by Standard and Poor’s after the debt ceiling battle in August, 2011, when Congress failed to take major steps to address the country’s fiscal problems. There is concern that the failure to find a path to tackle the fiscal issues will result in another downgrade of the U.S. credit rating.

As Congress struggles with the cliff, the Fed will continue its easing programs, which were criticized by Romney and his running mate, Rep. Paul Ryan, R-Wis. “Gold is hanging in because Bernanke will keep doing it,” said Boockvar. “With Obama, it’s still certainly a green light.”

Stocks bounced on Tuesday on relief that the election would bring an end to uncertainty. There was also some speculation that perhaps Romney could pull off a victory and stocks that would do better under Republicans moved higher.
But many of the stocks that rose Tuesday were sold Wednesday, including coal, energy, and managed care shares.


Source : CNBC

Next 2720

Dear Readers, im here writing to you all covering for Tsar as requested by him to give you guys my insights on the fundamental analysis, i have been asked by Tsar countless times but i havent quite got used to posting on this thread yet as i heavily engaged with the GBPUSD cable thread.

So here is his PM



Okay to start off... lets answer a couple question... When we trade forex, we often refer to currency pairs like EURUSD and GBPUSD by their nicknames.... aka Fiber for EURUSD and Cable for GBPUSD... the reason behind this is that... in the past.... when Europe, UK and the US traded together, they actually have lines across the sea for telecommunications known as hotline and for a trader in the UK to place a trade or buy something in the US... So the bankers... when they refer to these potential buyers and sellers on the phone for example in the US... a broker in US would say.... "Yo guys, we got a seller quoting this price forus 1.xxxx over the cable" then its up to the guys in US to decide if they want to take up that offer.... Thats basically it. so Cable refers to GBPUSD, not EURGBP or anything... JUST GBPUSD.

Next, i've been asked by Tsar to give my insights in the US situation and why its dangerous to Short against the US Dollar (meaning.... Long EURUSD, GBPUSD, AUDUSD.... Short USDCAD, USDCHF etc etc).

Lets start by the Long term fundies regarding the US Dollar... As of late, the US Dollar has acted Rather Strange.... Why is it strange? well when trading forex, one must always study the correlation between different trade instrument, for example the correlations between the US Equities and the US DOllar..... if you look closely... when US equities like Dow jones or the S&P 500 rises, the DOLLAR often falls... leading to a Rise in the EURUSD, GBPUSD, AUDUSD Spot exchange.
The reason behind this is that.... domestic US investors, when good data comes out, it impacts their markets more than it does to others.... so when GOOD US news comes out, the US Dollar is Sold to buy US Stocks and Shares.... the Strength of the US Dollar is thus transfered to the Stock Market....
However.... as of late (Talking about Prior to US elections) we could see that US Dollar attempting to make new highs as see in the DXY but capped at 80, while US equities were soaring high and fast.... and that doesnt make any sense for me because the Dollar was strengthening while Equities were soaring.... so which one is telling the truth.... for me... the Dollar strength is telling the truth, but someone or something was keeping the dollar strength down through methods like Quantitative Easing, of which its obvious... if anyone researched the meaning of QE, the meaning for dummies is here.... Basically the Federal Bank of America, Printing Money to purchase bonds (these bonds are like a certicate of money borrowed to private firms) when bonds are purchase, company gets a boost of liquidity, which reflects in the firm's financials and optimistic financials lead to a rise in the stock market.... End of story for the S&P/Dow Jones.

Now to the more Immediate fundie of the US Dollar.... (during US election), Prior to the presidential election we had the campagne phase at which the dollar appreciated along with the Equities through speculation speculation speculation, the big boys were already betting at whos gona win MONTHS or even a YEAR before the elections took place... and this had caused HUGE uncertainty over the Dollar Strength over this period.... While some of the Members here in forex factory might say that, "oh obama is the new president and the fiscal cliff is gona plunge the economy into double dip recession and all that theory" I will have to say that is total nonsense.... Yes the fiscal cliff might hurt the US Economy, but it doesnt mean that all of a sudden No body's gona Want the US Dollar.... Need i remind that the US dollar is STILL the reserve currency in the world??
Also.... For me... it didnt matter whether if it was Obama or Romney who gets elected... As Long as the Election is done, we could see that the DOLLAR can finally appreciate, way beyond that 80 line in the DXY ... Reason is as i said... The whole speculation part and uncertainty of the dollar kept the lid on the US Dollar.... now that the Uncertainty is Gone.... the US Dollar can now go back to Normal flows... An yes when i say Going back to Normal Flows...Yes i see the US Dollar Rising... So EURUSD falls, GBPUSD Falls, AUDUSD falls.... and also US Equitiy Markets may fall too.... the S&P is already coming across looking like an artificial bubble created by the Fed through Quantitative Easing....

Hopefully you all find this Fundamental Analysis useful!
These are my views, so i welcome any feedback or questions you might have

Yours Sincerely

http://ruforum.mt5.com/images/smilies/good.gif
BEARISH Trend in 'Higher Time Frime' still Relly... http://ruforum.mt5.com/images/smilies/peace.gif

As you knew, I'm pure Technical Analysis (TA)

We ALL really need you, NOW !

Thank's for your Replied, Bro

What Does Election 2012 Mean for the Fed?

November 7, 2012, 3:12 PM By Kristina Peterson



One big consequence of President Barack Obama‘s Tuesday night win is that he’ll get to choose the next chairman of the Federal Reserve. But when might that actually happen? If history is any guide, not for a while.


http://s.wsj.net/public/resources/im...1008184603.jpg


Traditionally, presidents have waited until the summer or fall to announce their picks to lead the Fed.
Ronald Reagan nominated Alan Greenspan in June 1987. The Bush White House consulted Mr. Greenspan extensively before choosing Ben Bernanke, whom George W. Bush nominated in October 2005.
Most recently, Mr. Obama announced that he would re-nominate Mr. Bernanke in August of 2009.

Mr. Obama does have one appointment he could make sooner. Governor Elizabeth Duke‘s term ended in January, though she may remain in office until her successor is confirmed. Appointed by President Bush, the former banker is the only one of the Fed’s seven-member Board of Governors not chosen by Mr. Obama. Ms. Duke has emerged as the Fed’s housing market expert and helped broker a compromise that paved the way for the central bank’s new bond-buying program this fall.

Meanwhile, Fed officials’ regular trips to Capitol Hill may prove slightly less contentious next year.
Democrats’ control of the Senate makes it less likely the Fed will face one unwelcome change some Republican lawmakers have advocated: opening up the central bank’s monetary policy deliberations to auditors.
GOP lawmakers who have also pushed to narrow the Fed’s dual mandate to focus just on price stability won’t have the muscle to pass such a bill in the Senate.

The Fed is tasked with promoting both full employment and stable prices, but some Republicans have worried that inflation could spike if the central bank focuses too much on boosting the jobs market. Fed officials say they are able to balance both goals over the long term.

And the central bank will get to say farewell to its loudest congressional critic, the popular curmudgeon, Rep.
Ron Paul (R., Texas), who retires in January. Republican Randy Weber, a two-term state representative, won his spot Tuesday night.


Source : WSJ BLOGS

NIce post about fundie side of trading and clear explenation how dollar acts vs stock market
You pointed out fiscal cliff as a primary reason for all USD bears, well I wish to show you some links which many users might not be aware probably because bloomberg won't tell you this on "money makers".

http://www.marketoracle.co.uk/Article34947.html

http://rt.com/news/iran-india-gold-oil-543/

http://www.ibtimes.com/china-russia-...l-trade-248234

There is a slow process in place to dump trading in us dollars, which is caused by aversion to Fed policy, endless QE's and ongoing, unsolved crisis.
If main bric countries and Japan are about to reduce-dump their dollar trades can we see US dollar as a sure bet in the near future???
British pound was once reserve currency right?
Wish to hear your opinion,

oh hi napoli

sorry i was actually out with my family the whole day

my stops were at 2730 today got a close call at 2736 i closed half of my position earlier in the morning at 2870 when i came back home every thing was down so i re loaded my closed position at 2760 stop is same and target this time 2980 and 3031

gl and use leverage wisely and correctly

for pound$ i am not using fix stop i am using "stop close only"

this mean that if prices closed under 5913 then i will close my position manually and wait to decent pull back to short this bloody pair,

currently still holding two longs 6020 and 5964 for targets actually my first target was 6055 now prices came back from near 6055 so the target number 6055 has been change now the 2nd target is my first target that is 6140

thanks and goodluck
never use leverage more than 1:4

if you want to play longer and safer

Sorry tom for replying this late... To answer ur question, i would like to talk QE first. QE has brought a lot of uncertainty to the usd which has kept speculators at bay not to long the dollar, but the us economy is showing signs it may bottom out... I mean look at their interest rates for starters.... Currently at less than 0.25% makes u wonder how much longer before fed will hike rates up, and when they do.... Hot money flow will buy up the dollar big time as the Foreign investors move their money to us to gain interest. Sooo dumping the dollar could only work on the basis that fed keeps on printing USD.

Now onto fiscal cliff.... The textbook definition of the fiscal cliff Is that the US government is trying to reduce its government deficits by either a cutting government spending or increasing taxes. Now house speaker john boehner has said theres wasnt any mandate discussions with obama on tax hike... So we have to presume the reduce in budget deficit will come largely from spending cuts.... So when the government is cutting their spending there is less reason to print money To finance their government spending which would increase fiscal budget deficits out from quantitative easing, This should provide concerns for the dollar bears in the longer term view

Event Risk: The Spring Begins Uncoiling

Wednesday, November 7, 2012
Marc Chandler

http://1.bp.blogspot.com/-sAvvMnP9R_...200/spring.jpg

One of our key interpretative points was to place emphasis on what appeared to be a contradiction between the significant event risk here in Q4 and the low implied volatility in the capital markets, in particular the S&P 500, the euro and yen at the start of the quarter. We expected the contradiction to be resolved in the favor of greater volatility.

Even if one does not trade options or pay much attention to volatility this insight is important because there seems to often be a directional bias to volatility. For example, the volatility of the S&P 500 tends to rise when shares are falling.

The currencies are more complicated. However, our work led us to believe that an increase in implied euro volatility was more likely to happen as the euro declined. Similarly, we had anticipated implied yen volatility would more likely rise as the yen strengthened.

The S&P 500 peaked on Sept 14 and has been moving lower it a saw-tooth pattern. On Wednesday, it closed below 1400 for the first time since early August. Implied volatility bottomed in early October near 13.7%. Now it is near 19%, near a four-month high.

Implied yen volatility (three-month) bottomed on October 10 near 6.55%. It recently traded as high as 7.75%, but has since pulled back toward 7.33%. Interestingly, the implied volatility rose as the yen weakened rather than strengthened as we anticipated. The relaxation in volatility has been experienced as US yieldsif and share prices have fallen. This suggests rather than trending lower, the market may expect that the yen may have simply moved in a new trading range.

In fact, implied volatility may trend lower if it appears that the yen drifts to the other side of the trading range, which we initially suspect is in the JPY79.30-50 range. It probably takes a break of the JPY79 area to convince players that a yen-bottom (dollar-top) is in place. Volatility may firm on such an event.

The euro, as we have noted, has been the exception. Implied volatility did not increase in October. Indeed, the 3-month implied euro volatility fell to new multi-year lows on Wednesday in the immediate aftermath of the US election, when it appeared that the euro was going to recover back above the $1.28 support area that had been violated at the start of the week.

However, when the euro reversed, so did implied volatility. Implied 3-month volatility recovered from near 7.86% to 8.2%. What is noteworthy is that euro volatility has not finished the New York session above its 20-day moving average in two months. That moving average comes in near 8.26%.

The Greek parliament narrowly approved the lasted austerity measures. This is the key to getting the Troika to sanction the release of some funds. If for some reason, parliament fails to approve next year's budget, which seems less likely after Wednesday's vote, some domestic compromise may be sought that does not jeopardize the agreement with the Troika. It is the less significant of the two votes.

Nevertheless, we continue to think event risk is substantial. We continue to believe that the two main flash points currently--Europe and the US--are unresolved. German parliamentary approval appears necessary and Greek officials cannot be 100% sure that it will be secured. Many, including ourselves, suspect that additional assistance for Spain is nearly inevitable, but Rajoy continues to bide his time. In addition, the Catalonian election in a few weeks underscores the centrifugal forces seen throughout Europe (Scotland, Catalonia, Venice and Bavaria's court case seeking end its subsidies for the poorer states in Germany). Meanwhile, the regional economy is contracting and hope is the only thing pointing to a shallow and brief downturn.

In the US, the fiscal cliff still looms and the cast of characters has not changed substantially by the election.
In addition, Operation Twist is set to be completed in the coming weeks and the decision whether to roll the Treasury purchases into QE3+ is awaited.

The bilateral harassment of Japanese and Chinese patrols in the South China Sea appears to be an accident waiting to happen. Nationalist forces are on the rise in Japan and they are never appear far from the surface in China. In addition, with the reconstruction push fading and foreign demand (China an Europe) soft, the Japanese economy is sliding back into contraction mode.

Geopolitical uncertainty in Syria and Iran could also easily escalate and pose new challenges for investors and policy makers.

This list is not meant to be exhaustive, merely suggesting of the range of potential risk events on the horizon and why we continue to suspect that protection, as measured by implied volatility, still seems relatively inexpensive.
In terms of price action, this warns of the risk of further declines in equities and the euro. The immediate direction of the yen is less clear by this study.