The Macro Trader’s view:
After a period of strength which began in October, albeit with a serious correction in December, the Dollar once again looks in danger of suffering a fresh bear market. The reasons for the Dollar’s strength which originally began in July 08, can largely be put down to the realization among traders that the Euro zone and other leading economies were going to suffer at least as much as the US, and in some cases more. The Euro zone, for instance, had initially been seen as the economy most likely to emerge from the global crisis relatively unscathed. So too was Japan. But it became brutally clear thatneither were as well insulated as first thought. Indeed, both the Euro zone and Japan have suffered sizable declines in industrial output, with Japan seeing exports collapse at a record rate. This realization and the wave of euphoria that surrounded the election of the new US President, gave the Dollar a bull impetus that on two occasions has looked like the start of a great fight back by the Dollar towards levels not seen in several years.
However, there has been a clear change of sentiment. President Obama sent congress a budget with a US$1.8T deficit which began to ring loud alarm bells: could the US sustain such large deficits and who was going to buy all this new bond issuance? For a while these fears were largely quelled by the argument that the surplus economies had little choice but to keep on buying US IOU’s or else see the value of their holdings collapse. While that may hold true in the short and medium term, the Chinese recently voiced their concern over the security of their Dollar assets, seeking a guarantee from the US over their value. This week those concerns intensified. China called for the Dollar to be replaced as the World’s reserve currency, urging a debate about the IMF’s SDR’s being beefed up to fill that role. In addition, Russia (another large surplus economy with in excess of US$400.B in reserves) has also called for a new global currency to be created. This cannot happen overnight, but isthe world starting to lose confidence in the US Dollar and more importantly, US economic policy which largely underwrites its value?
If global confidence in the Dollar were to ebb sufficiently, it could be the start of a long bear market.
The consequences are serious as currently there is no viable alternative. But the likes of China, India and Russia, not to mention the Middle East oil exporters who also hold vast Dollar reserves, are sounding serious, and they might just now have enough economic clout to bringabout a serious debate, which would not be Dollar friendly. Add to this the fact that the US fiscal stance is, in the words of the Congressional budget office,‘set on an unsustainable path’ and the Dollar could suffer a more immediate sell-off as a result of the administration suffering severe difficulty funding the massive budget deficit.
Only yesterday a 5 Year note auction failed to attract its expected interest.
We judge the writing is written clearly on the wall: be careful of the Dollar.
The Technical Trader’s view:
DAILY CHART
The US Dollar Index broke a powerful and well-established down trend in the autumn of 2008.But the strengthening since then seems to have stalled. Look closer.
DAILY CHART
Here’s that pause in more detail. The double failure at 89.7250 is important. The pull back from that has come halfway towards the critical low at 80.25. It certainly looks like a Pennant formation.
And if Pennants complete then they tend to move the same distance as the fast prior move.Implying a break of 80.25 (which would, of course, complete a powerful bear Double Top)
DAILY CHART
An equivalent possible reversal pattern can be found in the Dollar Euro. The Double Bottom isclearly a long way from completion – requiring a break up through the High at 1.4716. But if the falling diagonal broke (currently 1.3850) that would be small additional bear DollaDollarevidence…
… and near term, the last few weeks’ trading look very like a bear flag (for the Dollar).
Mark Sturdy,John Lewis,
Seven Days Ahead
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Friday, 27 March 2009
Bull Signal in GBP/USD Finally Appears
The FX Trader’s view -
Over the last few weeks certain signs have been present that Cable bears were getting tired – but we have waited for an appropriate signal before swearing allegiance to the bullish cause. We now think there is enough to justify seeking some sort of recovery in this market.
- WEEKLY CHART: The structure of the whole downmove had indicated to us that the move was lately in a mature stage. This was backed up by a positive divergence on the Weekly RSI.
- There have been shorter term bull signals, but we wanted to see a close above a particular falling resistance line before taking a bull stance. This has now happened. Our initial target is the 1.5070 23.6% retracement, a later one the 1.6040 38.2% area. A s/term pullback is no surprise, and it doesn’t matter if price slips back below that resistance line – the signal that bull momentum is on the increase is in place. Support for a deep pullback may well be from the old s/term falling resistance/return line around 1.3900 currently. But buyers on dips may favour the 50/61.8% area of the 1.3653-1.4778 upleg, 1.4215/4083, for entry, stops likely just below 1.3653 11-Mar low, seeking partial profits at 1.5000/5070. This analysis goes wrong if the 1.3653 low fails.
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Key Reversal Week in Natural Gas
The Commodity Trader’s view -
During the relentless downmove in Natural Gas prices there have been one or two false dawns for bulls. However, the light at the end of the tunnel may finally have been reached, with technical reasons for expecting a rebound becoming compelling.
- WEEKLY CHART – MAY-09: For the last few weeks in the Commodity Trading Guide we have been pointing out the positive weekly RSI divergence, which hints at bear fatigue. And last week we saw a Key Reversal Week which may be setting the chart up for a decent rebound. We have marked in the appropriate retracement levels of the major fall.
- DAILY CHART – MAY-09: There have already been one or two minor positive signs on the Daily chart. (Note the positive divergence on the daily RSI) We now want to see a close above the bear channel top projection AND the nearby 4.461 05-Mar high to trigger us bullish. We would first target towards the 5.650 23.6% level. Ideally, after an up-break, support for any dips will come in at/above the 4.101 12-Mar high (although, in the end, that Key Reversal Week wouldn’t be negated until a drop below the 3.743 low).
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Friday, 20 March 2009
Is gold ready to go?
The Macro Traders view:
Since hitting a recent high on February 20th of just above $1,000, gold has been in what we judge to have been a period of correction.
The recent Dollar rally seemed to remove some of the rationale behind buying gold, because the US currency was increasingly viewed as a safe-haven trade. The background to that was the global economy sinking deeper into recession with developed and emerging economies seeing growth contract and inflation correct lower, and oil and other commodity prices sinking due to falling demand.
So, while the US economy remained deeply mired in its own recession, sentiment was positive towards the US where a new President was promising a “new agenda” which would both fix the economy and equip it for future challenges. And even though US economic data continued to deteriorate with unemployment soaring, banks on the brink of failing and the housing market almost in free fall, the Federal Reserve was putting into place a string of policies designed to support monetary expansion, foster bank lending and generally get the economy moving.
Indeed, in recent days the Gold market even looked to some as though it was about to break down and begin testing the lows! Three leading US Banks had received substantial government aid and announced they were now back in profit. That fuelled an equity market rally just when the bears had looked finally to be taking complete control of stocks globally.
But the mood has changed. At the moment when the Gold market looked on the brink of a heavy sell-off, the Fed announced the expansion of many of its pre-existing bond purchase schemes and surprised markets by announcing the de facto start of quantum easing with a US$300 Billion. Longer-dated Treasury purchase program. Bond markets took this positively and equities largely held recent gains. The Dollar sold off.
With so much stimulus being pumped into the US economy, traders/investors have become worried that before that stimulus can be removed, the seeds of a fresh outbreak of inflation will already have been sown.
It may be that given the current weakness of the US and Global economy, the authorities have no choice. To do nothing might risk an economic disaster on the scale of the 1930’s or earlier with massive unemployment. But those traders’ fears are being expressed in gold, an asset class that offers no carry, but is still seen as the ultimate store of wealth as it is beyond the reach of any one nation’s economic policy and cannot be devalued as with paper money.
We judge the Feds decision to start quantum easing to be a major event. All the more so because some US data had shown small signs of improvement:
- Retail sales were better than expected the previous week, and
- This week housing starts and building permits have come in stronger than expected
The Fed, unlike the markets at the moment, thinks the economic outlook is grim. Hence their new policy action which has clear implications for the Dollar and Gold.
The Technical Trader’s View:
Quarterly bar chart
The market has held above the $8783 Prior high – despite repeated attempts to sell off. That level looks to have acted as powerful support. The bull trend is intact. We think there is a long-term move in the offing with $873 as a spring board.
April 09 Daily Bar Chart
The bull potential of the market is unmistakable. The critical level is 1005-7. We are some way from that. But the volatility of the price action is shocking. Yesterday had a range of $81. A Key Reversal? Maybe.
Aggressive traders will want to buy now. Others, perhaps wiser, will wait for a break through 1005-7.
Mark Sturdy, John Lewis
Seven Days Ahead
For the complete and illustrated version of this and future Updates be sure to sign up at http://www.sevendaysahead.com/
Since hitting a recent high on February 20th of just above $1,000, gold has been in what we judge to have been a period of correction.
The recent Dollar rally seemed to remove some of the rationale behind buying gold, because the US currency was increasingly viewed as a safe-haven trade. The background to that was the global economy sinking deeper into recession with developed and emerging economies seeing growth contract and inflation correct lower, and oil and other commodity prices sinking due to falling demand.
So, while the US economy remained deeply mired in its own recession, sentiment was positive towards the US where a new President was promising a “new agenda” which would both fix the economy and equip it for future challenges. And even though US economic data continued to deteriorate with unemployment soaring, banks on the brink of failing and the housing market almost in free fall, the Federal Reserve was putting into place a string of policies designed to support monetary expansion, foster bank lending and generally get the economy moving.
Indeed, in recent days the Gold market even looked to some as though it was about to break down and begin testing the lows! Three leading US Banks had received substantial government aid and announced they were now back in profit. That fuelled an equity market rally just when the bears had looked finally to be taking complete control of stocks globally.
But the mood has changed. At the moment when the Gold market looked on the brink of a heavy sell-off, the Fed announced the expansion of many of its pre-existing bond purchase schemes and surprised markets by announcing the de facto start of quantum easing with a US$300 Billion. Longer-dated Treasury purchase program. Bond markets took this positively and equities largely held recent gains. The Dollar sold off.
With so much stimulus being pumped into the US economy, traders/investors have become worried that before that stimulus can be removed, the seeds of a fresh outbreak of inflation will already have been sown.
It may be that given the current weakness of the US and Global economy, the authorities have no choice. To do nothing might risk an economic disaster on the scale of the 1930’s or earlier with massive unemployment. But those traders’ fears are being expressed in gold, an asset class that offers no carry, but is still seen as the ultimate store of wealth as it is beyond the reach of any one nation’s economic policy and cannot be devalued as with paper money.
We judge the Feds decision to start quantum easing to be a major event. All the more so because some US data had shown small signs of improvement:
- Retail sales were better than expected the previous week, and
- This week housing starts and building permits have come in stronger than expected
The Fed, unlike the markets at the moment, thinks the economic outlook is grim. Hence their new policy action which has clear implications for the Dollar and Gold.
The Technical Trader’s View:
Quarterly bar chart
The market has held above the $8783 Prior high – despite repeated attempts to sell off. That level looks to have acted as powerful support. The bull trend is intact. We think there is a long-term move in the offing with $873 as a spring board.
April 09 Daily Bar Chart
The bull potential of the market is unmistakable. The critical level is 1005-7. We are some way from that. But the volatility of the price action is shocking. Yesterday had a range of $81. A Key Reversal? Maybe.
Aggressive traders will want to buy now. Others, perhaps wiser, will wait for a break through 1005-7.
Mark Sturdy, John Lewis
Seven Days Ahead
For the complete and illustrated version of this and future Updates be sure to sign up at http://www.sevendaysahead.com/
NZD/USD Finally Starts Bouncing Off 76.4%
The FX Trader’s view -
Over the last few weeks this market has been grinding lower, on its approach to a long term 76.4% level. Now tested, the reaction has so far been positive – we have an initial bull signal in place now.
- MONTHLY CHART: The structure of the chart had looked mature to us in the weeks preceding the eventual test of the 76.4% retracement. This is a good technical level from which to see a recovery phase starting. Note that AUD/USD had already tested and tried bouncing off its long term 76.4% level.
- DAILY CHART: In Tuesday’s FX Trading Guide we said that a close above the 0.5446 09-Feb high would be a bull trigger – and that, in fact, a close above the small bear channel top projection would enough. This has happened and, as in AUD/USD, our stance is bullish now. But note near resistance from 0.5651/74 area, 23-Dec low and 23.6% level – this could prompt a s/term pullback, a chance for buyers on dips. A higher channel top projection around 0.5800 offers future resistance too, ahead of the 0.6160 38.2% level. Buyers on dips would want initial stops below 76.4% of the upleg from 0.4890, then targeting the 0.5674/0.5800 area for partial profits, ahead of 0.6160. We do not want the 0.4890 04-Mar low to break now.
- Note: We have been bullish of EUR/USD in the FX Trading Guide for nearly two weeks now. After last week’s Update on this market our initial targets have been quickly met and exceeded. We now have a higher target which will be detailed in next week’s Guide.
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Crude Oil Bulls Awake After $50 Break
The Commodity Trader’s view - In recent issues of the Commodity Trading Guide we have been talking about the possibility of a re-awakening of the Crude Oil bulls, but we have patiently awaited the technical signal that sounded the first alarm bell. It is now ringing.
- WEEKLY CHART – CONTINUATION: The continuation chart, since late last year, has been trying to base. It had found good resistance from the important 49.90 Jan-07 low. This 50 area was seen as key, and a trigger for a bull stance. See Daily chart…
- DAILY CHART – MAY-09: The downtrend had slowed, but we needed to see a close above 50 in order to adopt a fairly aggressive bull stance. This has now happened. Nearby hurdles come from the small bear channel top projection around 56.00 and then the 58.31 06-Jan high. Some sort of pullback would be in order before our first target of the 23.6% 64.74 level is tested (later target around 80, the 38.2% mark). Speculative buyers will probably await modest dips, initial stops favoured just below the 39.42 19-Feb low, targeting 64.00/64.74 for partial profits. Note that there will remain a reasonable bear risk while those 56.00-58.31 resistances aren’t breached.
[For the complete and illustrated version of this and future Updates be sure to sign up at www.sevendaysahead.com]
Friday, 13 March 2009
Stocks are poised
The Macro Trader’s view:
The latest leg of the Bear market began around February 2nd as a result of yet more uncertainty and bad news coming from the financial markets culminating in the US government taking a sizeable minority stake in Citi Group and the UK government taking a majority stake in Lloyds Banking group. At the same time RBS announced the largest UK corporate loss ever. This seemed to set the scene for the market to sell off further as investors in financial stocks seemingly ran the risk of seeing their investments destroyed by governments that cared little for private equity as they conducted a crusade to avoid financial market collapse.But just a few days ago, when it seemed as though the Bears were about to run rampant, the market embarked on yet another vicious short covering rally.
Some, eternal optimists, have declared that a turning point in the markets fortunes may have been reached. They cite as their reason comments from the head of Citi Group whoannounced earlier this week, “that so far the start of 2009 had been profitable for the Bank”. Additionally, J P Morgan Chase, have released similar comments with Bank of America sounding even more positive, when they announced yesterday, that they may be able to get by without unloading toxic assets. After months of dire news from the Banking industry, traders and investors were clearly cheered by this news and the market rallied.
However, policy-makers in the US are not as easily convinced as they announced that they stand ready to offer Citi Group more assistance if needed; do they know something?
And here in the UK, Chancellor Darling has begun dropping hints that there will be no new fiscal boost in his upcoming budget, which runs contrary to expectations.
Yet this is not the complete picture. This weekend the finance ministers and Central Bank governors of the developed and major emerging economies meet under the G20 banner to discuss the global recession and explore what can be done, ahead of a G20 summit of heads of government to be held on April 20 in London. The markets are clearly hoping that a broad-based plan for recovery can be achieved, but already there are differences between the US and EU. The US, together with the UK, is pushing for the G20 to agree to a new global fiscal stimulus, but the EU/Euro zone argues that isn’t the way forward. So unless this major hurdle can be overcome, financial markets look like being seriously disappointed. With most economic summits usually failing to agree anything of significance, other than a communiqué which states everyone will do all he can without setting out exactly what will be done, we see these two events as likely setting equities up for another sharp selloff.
Interestingly, at the same time as Prime minister Brown is calling for more fiscal action on a global scale, his Chancellor is lowering expectations at home; Brown has spent so long jetting around foreign capitals, he seems out of touch with his own finance minister, not a good omen for broad-based agreement among foreign heads of government!
The Technical Trader’s view:
MONTHLY CHART DAX CONTINUATION CHART
Germany has yet to test the lows of 2003. The support from the prior High at 4190looks to have broken. So the market has renewed downward momentum…
WEEKLY DAX CONT.CHART
Driven by – a clear completed Continuation Triangle. The minimum target? Around 3000.Still somewhat short of the lows of 2003….
MONTHLY S&P CONTINUATION CHART
This familiar chart demonstrates how much lower and technically weaker the Us market is: the lows of 2002 have been taken out – and a Double Top completed. The minimum move for this market is a good deal lower still – beneath 400. While the bear prospects for each are very different (at the moment) they are both remain unequivocally bearish. With powerful resistance above each market.
Mark Sturdy,John Lewis
Seven Days Ahead
For the complete and illustrated version of this and future Updates be sure to sign up at http://www.sevendaysahead.com/
The latest leg of the Bear market began around February 2nd as a result of yet more uncertainty and bad news coming from the financial markets culminating in the US government taking a sizeable minority stake in Citi Group and the UK government taking a majority stake in Lloyds Banking group. At the same time RBS announced the largest UK corporate loss ever. This seemed to set the scene for the market to sell off further as investors in financial stocks seemingly ran the risk of seeing their investments destroyed by governments that cared little for private equity as they conducted a crusade to avoid financial market collapse.But just a few days ago, when it seemed as though the Bears were about to run rampant, the market embarked on yet another vicious short covering rally.
Some, eternal optimists, have declared that a turning point in the markets fortunes may have been reached. They cite as their reason comments from the head of Citi Group whoannounced earlier this week, “that so far the start of 2009 had been profitable for the Bank”. Additionally, J P Morgan Chase, have released similar comments with Bank of America sounding even more positive, when they announced yesterday, that they may be able to get by without unloading toxic assets. After months of dire news from the Banking industry, traders and investors were clearly cheered by this news and the market rallied.
However, policy-makers in the US are not as easily convinced as they announced that they stand ready to offer Citi Group more assistance if needed; do they know something?
And here in the UK, Chancellor Darling has begun dropping hints that there will be no new fiscal boost in his upcoming budget, which runs contrary to expectations.
Yet this is not the complete picture. This weekend the finance ministers and Central Bank governors of the developed and major emerging economies meet under the G20 banner to discuss the global recession and explore what can be done, ahead of a G20 summit of heads of government to be held on April 20 in London. The markets are clearly hoping that a broad-based plan for recovery can be achieved, but already there are differences between the US and EU. The US, together with the UK, is pushing for the G20 to agree to a new global fiscal stimulus, but the EU/Euro zone argues that isn’t the way forward. So unless this major hurdle can be overcome, financial markets look like being seriously disappointed. With most economic summits usually failing to agree anything of significance, other than a communiqué which states everyone will do all he can without setting out exactly what will be done, we see these two events as likely setting equities up for another sharp selloff.
Interestingly, at the same time as Prime minister Brown is calling for more fiscal action on a global scale, his Chancellor is lowering expectations at home; Brown has spent so long jetting around foreign capitals, he seems out of touch with his own finance minister, not a good omen for broad-based agreement among foreign heads of government!
The Technical Trader’s view:
MONTHLY CHART DAX CONTINUATION CHART
Germany has yet to test the lows of 2003. The support from the prior High at 4190looks to have broken. So the market has renewed downward momentum…
WEEKLY DAX CONT.CHART
Driven by – a clear completed Continuation Triangle. The minimum target? Around 3000.Still somewhat short of the lows of 2003….
MONTHLY S&P CONTINUATION CHART
This familiar chart demonstrates how much lower and technically weaker the Us market is: the lows of 2002 have been taken out – and a Double Top completed. The minimum move for this market is a good deal lower still – beneath 400. While the bear prospects for each are very different (at the moment) they are both remain unequivocally bearish. With powerful resistance above each market.
Mark Sturdy,John Lewis
Seven Days Ahead
For the complete and illustrated version of this and future Updates be sure to sign up at http://www.sevendaysahead.com/
Thursday, 12 March 2009
EUR/USD Chart Now Suggests Rebound Risk
The FX Trader’s view -
This week in the FX Trading Guide we took an aggressive bull stance in EUR/USD - the drop from a high in December has been noticeably slowing down in the last few weeks, and we had been on the lookout for some green shoots of recovery (albeit a temporary one). Further confirmation is needed to better justify our view, but we feel s/term downside is now limited.
- MONTHLY CHART: Support on the long term chart has come in above 50% so far. But any rallies in price are viewed as temporary, like that of late last year. It is possible, over time, for this market to slip back to the 76.4% retracement, near 1.0000 – there is an interesting Fibo projection down here too…
- DAILY CHART: For several weeks in the FX Trading Guide we have kept marked in on the Daily chart a Fibo projection at 1.2470 – last week’s low was 1.2455. On that day, 04-Mar, a modest Reversal Day was seen. We have taken an aggressive bull stance, and now wish to see a break above 23.6% resistance to confirm both the bullish view and validity of that projection. Note how the 23.6% and 38.2% levels neatly coincide with the 23-Feb and 27-Jan highs. THIS IS NO ACCIDENT – it shows the hidden forces of Fibonacci at work, and was the basis of our 1.2470 projection (of course, it doesn’t always happen this way). A close above 1.2990 23.6% would target the 38.2% level next. Buyers on dips will likely have initial stops just below 1.2455, with the 23.6% and 38.2% areas offering a chance for partial profit-taking. We think the bulls are stirring, and not just a cup of sugared tea.
- Note: Our USD/CHF Update of 27th Feb highlighted a bearish Key Reversal Day. We have stayed bearish since and still look for further weakness.
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Limited Downside in Cocoa
The Commodity Trader’s view -
After a February high, around a 76.4% resistance level, the market has enjoyed quite a deep correction. However, an interesting support area has now been neared (including another 76.4% level) and a rebound phase may not be far off now.
- MONTHLY CHART – CONTINUATION: The 76.4% level of the 2004-2008 rise, near 1800, currently underpins the market. It is close to old highs from 2003/2005 –reaction here was very positive.
- DAILY CHART – MAY-09: The 76.4% resistance area was a former target – the subsequent pullback has been deep. We are currently looking at the key support area around the 76.4% 2148 retracement, noting the old falling resistance/return line now near 2100 too. We remain on the lookout for a rebound from this key area – first upside target would be the 2466 26-Feb high area. Any buyers towards the 2148 76.4% level will likely favour initial stops below that return line, below 2100 currently.
[For the complete and illustrated version of this and future Updates be sure to sign up at www.sevendaysahead.com]
Friday, 6 March 2009
US Dollar/SA Rand Begins to Break Higher
The FX Trader’s view -
After a significant peak last October, a pullback in USD/ZAR was followed by a lengthy period of consolidation. For some time we have felt more favourable towards the bulls and, this week, we have finally seen a bull break. Will it last?
- MONTHLY CHART: See how the long term 76.4% retracement here was very effective in repelling the 2008 surge. It remains an important hurdle to cross.
- DAILY CHART: For some time now we had been watching price action within a bear channel we had drawn in. After support was found from the 9.5000 area (close to a small 76.4% level) there has recently been an initial close above the projected channel top. This triggered us bullish. We first target the nearby 10.7700/8300 area (21-Nov high/61.8%). Resistance would not be a surprise here, but later strength should be there to test the higher 11.2200 76.4% area. Ideally s/term pullbacks will find support at/above the 9.7755 26-Feb low now, in order to preserve momentum. In this week’s FX Trading Guide we suggested that any buyers on dips will likely have initial stops below that 9.7755 low, targeting towards 10.7700/8300 area for partial profits.
[For the complete and illustrated version of this and future Updates be sure to sign up at www.sevendaysahead.com]
The fading Yen?
The Technical Trader’s view:
DAILY CHART
There’s a neat Double Bottom driving the Yen weaker – sufficiently powerful to smash the resistance from the low at 96.15 and beyond. The minimum target of the Bottom is easily measurable as far as 102 or so.Will that continue though? Look at the wider context…
DAILY CHART
On the whole we think progress beyond 102 will be rather unlikely without a great struggle. Those prior lows are powerful. So unless trading the very short term, the weakening Yen trade may be best avoided…for the moment
The Macro Trader’s view:
Until quite recently the strongest of the major currencies was the Japanese Yen:
- Against the Dollar the rally began in June 2007,
- Against the Euro, a little later; July 08, and
- Against Sterling July 07.
The move was fuelled in each case by emerging evidence that the US, UK and Euro zone economies were at risk of recession, whereas Japan was enjoying one of the longest periods of expansion since WW11.
However, more recently the Yen rally has not only run out of steam, but looks like unravelling completely. Not because the other major economies are showing any signs of recovery, quite the contrary:
In the US the Fed’s Beige Book released last night summarized the economy as still weakening and said recovery wasn’t expected until late 2009 at the earliest and possibly not until mid 2010,
In the UK the Bank of England cut interest rates by another 50bp today, taking official rates to just 0.50%, and still they judge inflation will undershoot the inflation target by the 2nd half of this year requiring policy makers to begin quantum easing, in an attempt to offset the weakness impacting the economy from abroad, and
In the Euro zone the outlook is no better; industrial orders, the main stay of the German/Euro zone economy continue to plunge and the ECB also eased by 50bp leaving Euro zone rates at an historical low of just 1.5%.
So why has the Yen suddenly become so weak?The answer lies in the state of the Japanese economy; it is now also in recession with exports collapsing at around 45% m/m, industrial production dropping by 10%m/m and the Bank of Japan having once more to resort to quantum easing in an attempt to inject some life back into the economy, as official interest rates are already practically at zero.
What has been so amazing about Japan is that without the help of strong export markets, there is insufficient domestic dynamism to sustain economic growth. After the “lost” decade, one might have expected Japanese consumers to be more able to support their economy as they satisfied pent-up demand, but obviously the economy’s recovery from that unhappy period of recession and deflation was only possible because the global economy was expanding so strongly. Now, without that support, Japan is unable to sustain itself.
Looking ahead, the US Dollar seems to have emerged as the markets’ preferred refuge or safe-haven trade and seems set to strengthen further against all the majors, but especially the Yen. The Euro and Sterling too, seem on the verge of a period of strength against the Yen, despite their own economic weakness. This seems to suggest that of the major economies, traders think Japan is at risk of outperforming the others on the downside.
Mark Sturdy,John Lewis
Seven Days Ahead
For the complete and illustrated version of this and future Updates be sure to sign up at www.sevendaysahead.com
DAILY CHART
There’s a neat Double Bottom driving the Yen weaker – sufficiently powerful to smash the resistance from the low at 96.15 and beyond. The minimum target of the Bottom is easily measurable as far as 102 or so.Will that continue though? Look at the wider context…
DAILY CHART
On the whole we think progress beyond 102 will be rather unlikely without a great struggle. Those prior lows are powerful. So unless trading the very short term, the weakening Yen trade may be best avoided…for the moment
The Macro Trader’s view:
Until quite recently the strongest of the major currencies was the Japanese Yen:
- Against the Dollar the rally began in June 2007,
- Against the Euro, a little later; July 08, and
- Against Sterling July 07.
The move was fuelled in each case by emerging evidence that the US, UK and Euro zone economies were at risk of recession, whereas Japan was enjoying one of the longest periods of expansion since WW11.
However, more recently the Yen rally has not only run out of steam, but looks like unravelling completely. Not because the other major economies are showing any signs of recovery, quite the contrary:
In the US the Fed’s Beige Book released last night summarized the economy as still weakening and said recovery wasn’t expected until late 2009 at the earliest and possibly not until mid 2010,
In the UK the Bank of England cut interest rates by another 50bp today, taking official rates to just 0.50%, and still they judge inflation will undershoot the inflation target by the 2nd half of this year requiring policy makers to begin quantum easing, in an attempt to offset the weakness impacting the economy from abroad, and
In the Euro zone the outlook is no better; industrial orders, the main stay of the German/Euro zone economy continue to plunge and the ECB also eased by 50bp leaving Euro zone rates at an historical low of just 1.5%.
So why has the Yen suddenly become so weak?The answer lies in the state of the Japanese economy; it is now also in recession with exports collapsing at around 45% m/m, industrial production dropping by 10%m/m and the Bank of Japan having once more to resort to quantum easing in an attempt to inject some life back into the economy, as official interest rates are already practically at zero.
What has been so amazing about Japan is that without the help of strong export markets, there is insufficient domestic dynamism to sustain economic growth. After the “lost” decade, one might have expected Japanese consumers to be more able to support their economy as they satisfied pent-up demand, but obviously the economy’s recovery from that unhappy period of recession and deflation was only possible because the global economy was expanding so strongly. Now, without that support, Japan is unable to sustain itself.
Looking ahead, the US Dollar seems to have emerged as the markets’ preferred refuge or safe-haven trade and seems set to strengthen further against all the majors, but especially the Yen. The Euro and Sterling too, seem on the verge of a period of strength against the Yen, despite their own economic weakness. This seems to suggest that of the major economies, traders think Japan is at risk of outperforming the others on the downside.
Mark Sturdy,John Lewis
Seven Days Ahead
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Thursday, 5 March 2009
Bull Trigger in Copper Now Activated
The Commodity Trader’s view -
Our 29th Jan Update looked at Copper, and how it was trying to base. We have switched from the March to May contract now, and the Daily chart has just given an initial bull signal, triggering us bullish.
- MONTHLY CHART – CONTINUATION: The major reversal from 4.2700 May high saw the deep 76.4% retracement of the 2001-2008 upmove eroded. However, the lower 1.2200 area, 1.618 swing projection off prior 2.3850-4.2700 upleg, has so far provided nice support.
- DAILY CHART – MAY-09: The consolidation in Jan/Feb held nicely above the 1.3920 23-Jan low. It remains key support. There has now been an initial close above the 1.6650/70 range top, providing us with a bull trigger. We may now target towards the 23.6% 1.9040 area initially, and later target the 38.2% 2.2955 retracement level. Buyers on this break (a modest dip would be useful here) will likely favour initial stops just below the 1.3920 low, seeking partial profits near 1.9000. We would be sidelined on a break below 1.3920.
[For the complete and illustrated version of this and future Updates be sure to sign up at www.sevendaysahead.com]
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