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Thursday, 18 November 2010 11:37

European Stocks Recover from Worst Drop in Four Months as the EU Prepares Possible Aid Package for Ireland’s Banks

Contributed By: DailyFx

 Europe Session Key Developments

- Ireland's Hold Out Will Lead to Significant Volatility

- British Officials Said They Would Back Support for Ireland to Prevent Bank Woes from Reaching the U.K. Market

European Equities rose modestly on Wednesday as investors hoped that European Union officials would devise a more definitive plan to cope with the region’s debt crisis though all they got was a pledge of support from Britain’s Finance Minister. Concerns that Ireland will not be able to pay the cost of rescuing its banks – in trouble largely because of the real estate boom collapse – has worsened Europe’s government debt crisis. Markets have pushed up borrowing costs for other troubled nations like Portugal and Spain, threatening to destabilize the common Euro currency. Officials from the International Monetary Fund and the European Central Bank will meet in Dublin on Thursday to further analyze the situation with Ireland’s troubled banking sector.

FTSE100 / 5692.56 / +10.66 / +0.19%

U.K. jobless claims unexpectedly fell in October, suggesting that the labor market is recovering momentum as the prospect of a record budget squeeze looms. U.K. Stocks rose slightly led by Experian PLC, the world’s biggest credit-checking company, which jumped 6.3% to 748 pence after reporting that first-half net income rose to $260 million up from $249 million a year earlier. (its biggest gain since April 2009). GlaxoSmithKline PLC (Glaxo) rose 2.4% to 1,243 pence after winning backing from an advisory panel of the U.S. Food and Drug Administration for the company’s Benlysta lupus drug. ICAP PLC, the world’s biggest interdealer broker, rose 1.3% to 472 pence after reporting that first-half pretax profit rose 2% to $292 million as revenue increased by 9%.

CAC 40 / 3792.35 / +29.88 / +0.79%

French stocks also reported gains after the CAC’s biggest drop in 3 months. Soitec SA surged 6.5% to 8.68 Euros after the supplier to the chip industry reported a smaller first-half net loss than expected citing sustained demand from the semiconductor industry. Zodiac Aerospace SA rose 2.2% to 52.78 Euros as the biggest maker of airplane seats in Europe may be taken over by a hostile bid by Safran SA (Safran’s shares slid 1.4% to 21.53 Euros).

DAX / 6700.07 / +36.83 / +0.55%

German stocks advanced on the general sentiment across Europe as the EU started work on a possible aid package for Ireland. Infinenon, Europe’s 2nd biggest chipmaker, rose 1.4% to 6.31 Euros as RBS raised its recommendation on the stock to “buy” from “hold” continuing Infineon’s gains made yesterday on positive profit reports. MAN SE, Europe’s 3rd largest truckmaker, jumped 2.5% to 88.31 Euros while Lufthansa Airlines rose 2.3% to 15.98 Euros. There is still uncertainty in the market with a risk of sideways trading between 6,650 and 6,750 in the DAX index.

IBEX 35/ 10189.30 / +93.90 / +0.93%

Spain’s IBEX 35 index rose 0.9% to trim losses of 2.5% yesterday. Cie Automotive added 2.1% to 4.19 Euros after the Spanish car-parts maker agreed to sell its Mexican steel wheels business to Brazil’s Iochpe-Maxion SA for $3.2 million. Fersa Energias Renovables SA gained for the first time in 4 days gaining 2.3% to 1.11 Euros after Goldman Sachs changed the stock’s status from “neutral” to “sell.”

S&P/MIB / 20639.08 / +76.01 / +0.37%

Pininfarina SpA surged 22% to 3.51 Euros as the designer of sports cars gauges interest for an acquisition by other firms like Magna International Inc. Tenaris SA rose 4.1% to 16.17 Euros paring yesterday’s 5.4% decline as European basic-resource shares climbed 0.8% today, the 5th best performance among 19 Industry groups in the Stoxx Europe 600 Index.

Published in Forex News
Thursday, 18 November 2010 11:37

Euro, Risk Appetite Climb As Ireland Intimates It Will Tap Funds Offer

Contributed By: DailyFx


The euro spiked higher as Ireland’s central bank Governor said that he expects Ireland to ask for assistance from the EU and IMF. He said that the figure could run into the tens of billions of euros and he acknowledges that banks must hold additional capital. Speculation has been rife that Ireland will ask for aid since early in the Asia session and the confirmation has seen the euro spike to fresh highs as concerns over Ireland’s ability to handle its debt alone are finally put to rest.

In recent days the euro has been under significant pressure with Irish obstinacy to requesting funds said to have made ECB President Trichet “mad” (Irish Times).Irish officials had said that funding is available through 2011 and it is fully capable of handling higher borrowing costs. In an abrupt U-turn a deal now seems to be in the offing, Ireland’s central bank Governor stressed that getting the terms and getting conditions of any assistance right is essential. Adding that if an agreement is reached it will be a loan and not a bailout, noting that he is confident a package will be agreed upon as officials would not have arrived in Dublin if there was no hope for consensus. The government initially wanted a clear distinction between an emergency bank aid and financial help for the State, there is now a reluctant acceptance that the former will have to be drawn by the government on behalf of the institutions.

Published in Forex News

Contributed By: DailyFx

The list keeps getting longer. I am seeing so many opportunities out there; and the greater the number of potentials, the harder it is to remain patient. However, patience is key to ensuring that good trades are taken and good entry levels are found. Simply jumping in now while ignoring the natural ebb and flow of the market can get me stopped out or drawn into bad trades that could ultimately be highly correlated (meaning I lose on an entire theme - which would deliver a far bigger loss than expected). We are one day after a critical break in risk appetite trends (as seen on the S&P 500); and the market seems to be far more quiet and making the effort to slowly correct the move. This is very common after a major breakout. A retest of former support as new resistance and vice versa is one of the foundations of trading. Yet, this time around there is a very heavy fundamental slant. We are simply waiting for many different things to fall apart. There is already more than enough there to force the swell in sentiment these past months to collapse; but it looks like we have too many hold outs that want to remain blissfully ignorant to reality.

For live position, I am still in the reduced and long-term long USDJPY position. Today's modest dollar pullback really doesn't alter the bearing on this setup because it is based heavily in fundamentals which means it will take a while to play out. Besides I'm happy to sit still while it is already well enough in the money. New to the game this morning are short AUDUSD and AUDCHF positions. AUDUSD bounced back up to test a short-term descending trendline from the past few weeks and offered me entry on a reduced short at 0.9825. I'll set the stop up 45 points and the first target at 100 (note the skew as I am comfortable with a little more risk here given my larger technical and fundamental outlook). As for AUDCHF, a very consistent falling trend of highs gives me easy entry on a reduced short from 0.9720 and allow me to put up a 50 point stop and 70 point first target.

The pendign column is still huge. It is very tempting to just jump in on a EURUSD and GBPUSD short; but I am waiting for either trend confirmation breaks or retracement to better levels on both cases. For the former I'd like to see 1.3625 and latter 1.5950. A long USDCHF trade above 1.00 is something that I would take even if I have long dollar exposure elsewhere given its fundamental winds. NZDUSD is very similar to AUDUSD; but I still want to highlight its descending trend channel these past two weeks and ptoential break of 0.7650. AUDCAD is still one of my favorite trade possiblities should it break 0.99 and confirm reversal. Then there is GBPCAD with wedge breakout potential, GBPJPY on a pull back to its channel and EURJPY and EURCHF who are staring down their respective range supports.

Published in Forex Articles
Thursday, 18 November 2010 11:38

GBPUSD: Bearish Breakout Ahead?

Contributed By: DailyFx

GBPUSD is edging lower following a test of resistance marked by the midline of a rising channel established from mid-May, with negative divergence on weekly RSI studies hinting a bearish breakout may be ahead. I will look for confirmation on a close below the channel bottom (now at 1.5788) to enter short.

Published in Forex News

USD Dollar (USD) – The dollar weakened slightly against most of the major currencies as Building Permits came out worse than expected at 0.55M vs. 0.57M that was expected. Housing Starts came out negative at 0.52M vs. 0.59M, as well as the CPI, which was also below expections at 0.0% vs. 0.1%. The Stock Markets in the U.S. closed with the Dow Jones weakening by -0.14% and the NASDAQ increasing by +0.25%. Crude Oil continued to weaken and reached a four week low closing at $80.44 a barrel. Gold (XAU) continued it’s down momentum and fell by -0.1% and closed at $1336.90 an ounce. Today, Unemployment Claims are expected at 442K vs. 435K prior. The Philly Fed Manufacturing Index is expected at 5.1 vs. 1.0 prior. Natural Gas Storage is also to be released and is expected at 11B vs. 19B.

Euro (EUR) – The Euro strengthened slightly against the dollar as economic data from the US favored the Euro.  No firm decision regarding Ireland’s debt seemed to cap the EUR/USD around the 1.3500 levels. The pair is above its moving average on the hourly chart. As long as the pair remains above 1.3525, we may see the beginning of a positive momentum for the pair. Overall, EUR/USD traded with a low of 1.3460 and with a high of 1.3565. Data regarding the Current Account is expected to be released at -2.2B vs. -7.5B, and later on in the day, ECB president Trichet is expected to speak.

EUR/USD – Last: 1.3584









British Pound (GBP) – The Pound regained lost ground against the dollar in Forex trading and spiked to around 1.5950 only to be knocked to lower levels. The Claimant Count Change came out much less than expected at -3.7K vs. 6.00K prior and prevented further gains. The pair barely managed to hold above 1.5900 levels and traded within a small range of less than 100 pips. Despite the minor recovery as long as the GBP/USD remain below its 1.5950 trend line, the trend is deemed bearish. Overall, GBP/USD traded with a low of 1.5854 and with a high of 1.5948. Today, Public Sector Net Borrowing is expected at 9.0B vs. 15.6B, retail sales are also expected at 0.5% vs. -0.2% prior, later on in the day MPC Member Posen is expected to speak.

GBP/USD - Last:  1.5908








Japanese Yen (JPY) – The yen weekend against the dollar as economic data from the US came out negative, and  put an end to the pairs  6 day positive rally. Although the pair dipped strongly on the daily chart, the pair’s ability to break levels above 83.00 shows the strength of the rally and buying in the dips may be a preferred strategy. As long as the USD/JPY remains above the 82.70 level, the momentum remains positive for the pair. Overall, USD/JPY traded with a low of 83.03 and with a high of 83.55. No economic data is expected today.

USD/JPY-Last: 83.30








Canadian dollar (CAD) – The Canadian dollar continued to weaken against the dollar as commodities continue to weaken, specifically crude oil which reached a four week low, making currencies linked to commodities and economic growth seem less attractive. The pair is still strongly above its moving average on the four hour chart and continues to be in a positive trend as long as the USD/CAD remains above the 1.0180 levels. Overall, USD/CAD traded with a low of 1.0181 and with a high of 1.0261. Today, Foreign Securities Purchases is to be released and is expected at 81.6B vs. 11.09 prior. Wholesale sales m/m are expected at 0.1% vs. 1.2%.

USD/CAD - Last: 1.0199









Published in Forex Articles

Contributed By: DailyFx

Fundamental Outlook

Retail sales in Great Britain are expected to rise 0.4 percent in October after falling 0.2 percent the month prior. At the same time, sales excluding auto fuel are estimated to rise 0.2 percent during the same period. Indeed, this may be the last push higher heading into the Christmas season. A rise in tomorrow’s figures will be the first increase since July of this year where the National Statistics in London said that sales rose 0.9 percent. I expect non specialized store sales to extend September’s advance, while clothing and footwear sales will likely reverse last month’s decline.

In the upcoming months, retail sales are expected to come back under pressure as higher value added taxes will weigh on household spending. These measures are estimated to begin in January. At the same time the massive spending cuts recently announced by the government will also put downward pressure on retail sales. The fiscal tightening measures proposed by Chancellor George Osborne marks the largest cuts in decades, and will in turn weigh on growth. All in all, a reading exceeding expectations will bode well for the British pound, but the advance may be short lived as sales and overall growth in the region will likely come back under pressure in 2011 amid tough austerity measures by the government in order to battle its high budget debt. However, a disappointing result could push the pound lower and lead to a key reversal in the GBPUSD.

Technical Outlook

GBPUSD Daily Chart


Charts Created Using Intellicharts – Prepared by Michael Wright

GBPUSD: The pair has extended its two day decline and is now testing the rising trend line dating back to the middle of May. Failure to break back below this level of support may lead the pair back towards the 1.59 area. However, yesterday’s drop below the key 1.60 level is of great concern as the dollar index has worked its way into a tight ascending channel on the daily chart. Unless the greenback buckles, I do not rule out a reversal in the GBPUSD in the near term.

Published in Forex News

Contributed By: DailyFx

 Talking Points

* Japanese Yen: Weakens Across the Board
* British Pound: Jobless Claims Fall For First Time Since July
* Euro: Holds Relative Flat on Fears Surrounding Debt Crisis
* U.S. Dollar: Consumer Prices, Housing Starts on Tap

The British Pound rallied to a high of 1.5936 on Wednesday as the economic docket reinforced an improved outlook for the U.K., but fears surrounding the European debt crisis may continue to bear down on the exchange rate as the risks for contagion intensifies. A report by the U.K. Office for National Statistics showed claims for unemployment benefits unexpectedly slipped 3.7K in October to mark the first decline July, while average weekly earnings including bonuses increased 2.0% during the three-months through September, which was largely in-line with expectations. As the GBP/USD pares the overnight advance ahead of the North American trade, we should see the pair find near-term support around the 50-Day SMA at 1.5838 as it maintains the upward trend from May, but a shift in market sentiment could lead the pound-dollar to weaken further throughout the week as European policy makers struggle to restore investor confidence.

Nevertheless, the Bank of England policy meeting minutes showed the MPC voted 7-1-1 to maintain its current policy in November, with board member Andrew Sentance pushing for a 25bp rate hike, while Adam Posen pressed the central bank to expand quantitative easing by another GBP 250B given the ongoing slack within the real economy. The BoE reiterated that it remains “ready to adjust policy in either direction” as the fundamental outlook remains clouded with uncertainties, and saw a greater risk for inflation as policy makers expect price growth to hold above target throughout 2011. As a result, Mr. Sentance argued that the recent developments strengthens the case to start normalizing monetary as the recovery gradually gathers pace, while Mr. Posen saw increased downside risk for growth as the new coalition in the U.K. tightens fiscal policy in order to balance the budget deficit. As the majority of the BoE maintains a wait-and-see approach, the central bank is likely to keep the benchmark interest rate at 0.50% and maintain its asset purchase target at GBP 200B throughout the remainder of the year, but there could be a growing split within the MPC as inflation continues to hold above the government’s 3% limit for inflation. According, we are likely to see interest rate expectations play a greater role in driving future price action for the GBP/USD, and the central bank may look to adjust monetary policy in the beginning of the following year as the

Policy makers in Europe tried to talk down the fears surrounding the European debt crisis as the governments operating under the fixed-exchange rate system struggle to address the root of its problems, but the euro showed little reaction to the efforts as it held a narrow range throughout the overnight trade. As a result, we are likely to see the single-currency hold steady throughout the day, but increased fears of contagion could drag on the exchange rate throughout the day and lead the EUR/USD to fall back towards the August high at 1.3333. Meanwhile, European Central Bank board member Guy Quaden said policy makers should “avoid restrictive monetary policies and ban protectionist attitudes” as the global recovery remains “fragile,” and continued to see a risk for an “uneven” recovery during an interview with a Belgian newspaper. As the European financial system remains weak, with the debt crisis intensifying, we are likely to see the Governing Council support the economy throughout the remainder of the year, but speculation surrounding the outlook for monetary policy is likely to have a greater impact in driving price action for the euro as the central bank plans to withdraw its emergency measures in 2011.

U.S. dollar price action was mixed overnight, with the USD/JPY extending the rally from the previous day to reach a high of 83.54, and the greenback could face increased volatility going into the North American trade as the economic docket is expected to reinforce a mixed outlook for the U.S. Consumer prices in the world’s largest economy is forecasted to expand at an annual pace of 1.3% in October after expanding 1.1% in the previous month, while housing starts are projected to contract 2.0% during the same period after rising 0.3% in September. At the same time, building permits are expected to jump 3.9% in October following the 5.6% contraction in the previous month, and the batch of mixed data could produce choppy price action in the dollar as investors weigh the outlook for growth and inflation.

Published in Forex News
Wednesday, 17 November 2010 15:07

Looking for Entry as Risk Appetite Makes its Big Break

Contributed By: DailyFx

 The day we have long been awaiting is finally upon us. Investor optimism has finally crumpled under its own weight. This looks like a great opportunity to short equities, commodities and all other things tied to risk (given good trade setup and money management of course). That said, it is interesting to note that I am only in one position at the moment - USDJPY. I have been waiting for this shift in underlying sentiment; and opportunities in these other asset classes look good for entry now. However, for the currency market, the issue is a little different. It is more about timing. The final crack in risk trends was no doubt helped along but the build up of issues over the past few weeks (the downsides of the need for US stimulus, Chinese efforts to slow growth, increased margin requirements on multiple assets, G20 agreements for emerging markets to curb hot capital inflows and of course European financial troubles). However, the big topic of the day - the rapid deterioration of Irish and other EU members' financial health - has not found definitive resolution. Ireland has not yet asked for a bailout. We could still see a potential relief rally for risk trends and more importantly the euro on such a step; but that probably won't erase the turn in sentiment. I am looking for the reaction to tangible steps in Europe; but I will also be looking for entry on a number of positions risk-linked in the mean time (with an aim for better prices).

One reason USDJPY is my only active position on today is because I decided to take profit on the remaining half of my USDCAD long position. I could have certainly tried to squeeze more out of this pair than the second exit point at 1.0210; but this pair is far too choppy and its fundamentals too troublesome to expect it to move in a straight trend. As for my USDJPY, the pair has shown continued improvement. Progress is measured; but that is to be expected as the shift in balance of risk position between these two is finely balanced.

For potentials: my list is long. I think the euro is in for trouble; but I think a relief rally is still possible on an actual bailout. I'll look for an entry on a short around 1.3600/50. If they ignore this step and go straight to the long-term implications of multiple bailouts, I'll still try to jump in below 1.3475 (but that would be a reduced position because it would essentially be chasing an entry). Other euro-based pairs I like include EURJPY on a break below 111.50 and EURCHF below 1.3265 - both range lows. The pound is offering us some interesting risk-related moves (further colored by the UK's stimulus/rate hike speculation. I would like a short on GBPUSD either with a move back up to 1.5950 or a confirmed break below 1.5825 should this risk aversion move hold up. Similarly, I am holding out for a GBPCAD breakout from its wedge and still open to a possible GBPJPY pullback to the resistance in its former descending trend channel. Other majors to watch is a possible AUDUSD short with a move back up to 0.9825 and/or a drop below 0.96; NZDUSD in a drop below 0.7650 and USDCHF with an eye above parity.

Published in Forex News

Contributed By: DailyFx


EUR/JPY:The market has done a very good job of holding above the daily Ichimoku cloud to suggest that we could be on the verge of a material shift in the structure in favor of significant upside over the medium and longer-term. Daily studies are however in the process of consolidating, so the preferred strategy is to look to buy into dips rather than on upside breaks. The latest pullback has taken the market back into the cloud, an ideal entry point for a fresh long now comes in by the 110.50 area. Ultimately, only a close back below 110.00 would force a shift back to the downside.

Published in Forex News

Contributed By: DailyFx


EUR/CHF:Despite the latest setbacks, we retain a constructive outlook with the market in the process of carving out a major base. There is some very solid internal range support in the 1.3200’s and we would expect to see any additional declines very well supported ahead of 1.3200 on a close basis. Ultimately, only a close back below 1.3200 would give reason for concern. Look for a break back above 1.3500 to reaffirm outlook and open the next major upside extension beyond 1.3835.

Published in Forex News
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