Business-Insider

The Fed has released the FOMC statement for this month and voted to reduce the overnight lending rate 50 basis points to 3%.

This reflects the lowest rates have been since June of 2005. The move was made easier after GDP numbers came out this morning lower than expected, mostly on negative housing growth.

Click here for some thoughts on why the cut was made:
http://pfxglobal.com/index.php?optio...055&Itemid=188
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by S. Wade Hansen

U.S. stocks appear to have hit bottom and are turning around and rebounding---for now. According the the NYSE Bullish Percent Index, stocks have bottomed and more and more stocks are turning around and showing point-and-figure buy signals.


Chart from www.StockCharts.com

If you aren't familiar with how the Bullish Percent Index works, StockCharts.com has a nice explaination of it here (http://stockcharts.com/school/doku.p...cent_index_bpi).

As long as Bernanke and his FOMC posse cut rates 0.50% this week, more and more stocks should start to turn around and show point-and-figure buy signals---which will move the Bullish Percent Index higher and higher.

This should give at least a short-term repreive to the U.S. equity markets, but it won't last long. 2008 is shaping up to be an ugly year for the U.S. economy (despite what President Bush might say in the State of the Union address tonight).

Watch for the EUR/USD to continue moving higher.


Also, check out the FREE videos, commentary, technicals, fundamentals, charts and education on our site (everything we offer is totally free):
http://www.pfxglobal.com/
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Position sizing can be extremely complicated or really simple. I tend to opt for the "simpler is better" route. In today's video we will look at how forex traders can size their positions for consistent trading.

What you will learn:
-Position sizing in the forex has a major impact on risk and forex profits
-Fixed-fractional or fixed-risk position sizing can help you be consistent in your trading
-You can calculate your maximum risk using your stop loss
-Maximum risk for options is equal to the total time value
-Position sizes may vary depending on your strategy

Position sizing is the process of determining how much to invest, or risk, in any single trade. Position sizing is different for active trading versus longer-term investing. In the case of trading, it is usually a function of how much you could lose if the trade went bad. In longer-term investing strategies, position sizing is a bit more complicated and may depend on the strategy at play. In this section, we will focus on sizing positions for short-term trades...

For the rest of the article and a video, click here: http://www.pfxglobal.com/index.php?o...019&Itemid=117
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by S. Wade Hansen

The New Home Sales numbers for December were released today, and the numbers were grim across the board. Here's the lead paragraph from the release from HUD and the U.S. Census Bureau (emphasis added):

"Sales of new one-family houses in December 2007 were at a seasonally adjusted annual rate of 604,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.7 percent (±12.1%)* below the revised November rate of 634,000 and is 40.7 percent (±7.8%) below the December 2006 estimate of 1,019,000."

Yikes! That is the worst sales year since 1963---and there were some pretty bad years in the 1980s.

However, the number that struck me the hardest was 9.6. That is how many months it will take to clear the current inventory at current sales rates. Yep, it will take 9.6 months to clear current inventory...not to mention the flood of homes that are going to come onto the market as the number of foreclosures continues to escalate.

9.6 tells me that we have got a long way to go before we come out of this recession here in the U.S., and the USD is not going to fare well during that time.

Here's a little exercise to illustrate why we haven't reached the bottom of the housing pullback or the economic slump we're in. Ask yourself what you would do if you had to move for work and you were looking at the prospect of holding onto your old house for 9.6 months while you were paying for a new house or renting in the city you move to. Would you stay the course and keep paying both payments, or would you cut your asking price and throw in some bonuses to sell your house?

Home prices aren't done falling. Home equity loans are drying up. The middle class has less to spend. Any economic stimulus package is going to take months to reach the American middle class. The USD is going stay behind the woodshed a little longer yet.

Also, check out the FREE videos, commentary, technicals, fundamentals, charts and education on our site (everything we offer is totally free):
http://www.pfxglobal.com/index.php?o...age&Itemid=165
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The following is a Bloomberg article by Christian Vits. For the full article see:
http://www.bloomberg.com/apps/news?p...4&refer=europe

Jan. 23 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said he's committed to fighting inflation even after stock markets plunged and the U.S. Federal Reserve cut interest rates to avert a recession.

``Particularly in demanding times of significant market correction and turbulences, it is the responsibility of the central bank to solidly anchor inflation expectations to avoid additional volatility,'' Trichet told the European Parliament in Brussels today.

Investors shrugged off Trichet's comments and increased bets that the ECB will be forced to follow the Fed and cut interest rates. Yields on June rate futures dropped 16 basis points to 3.72 percent. The U.S. central bank cut its benchmark rate by three quarters of a percentage point to 3.5 percent yesterday after global stock markets tumbled on concern a recession in the world's largest economy will curb global growth.

``Europe is not going to get special dispensation from a global slowdown,'' Stephen Roach, chairman of Morgan Stanley in Asia, said on a panel discussion at the World Economic Forum in Davos, Switzerland. ``Europe is not this dynamic, rapidly growing economy.''

Europe's service industries this month grew at the slowest pace in more than four years after credit tightened and the euro neared a record, an industry report showed today.
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Today's daily video is another change of pace. This is a question that I get a lot from other traders and many people in the market are extremely passionate about their feelings on this subject. Get the facts, and check it out yourself.

What you will learn:

- The forex market is made up of a network of banks and dealers
- Forex prices should be consistent from dealer to dealer
- Dealers handle spreads and order routing differently
- There are many misconceptions about dealing desks

Like most markets, the forex essentially works because many participants are buying and selling a fairly uniform product. Currency contracts at the retail level are most often denominated in 100,000 or 10,000 units of the base currency in the pair. There are many dealers who will break a lot into units smaller than that, but a full-size 100K or mini-size 10K lot is the most common.

Forex dealers can be classified as over-the-counter market makers. That means that when you are buying a currency pair, they are the seller. Likewise, when you are selling a currency pair, they are the buyer. The quotes you see on your trading platform are the prices the dealer is willing to buy or sell the currency contract for. That seems pretty straight forward, but why are the prices offered by all the dealers virtually identical if they are independent? That question causes a lot of confusion in the market. Frankly, the source of most of that confusion is the dealers themselves. Some of them will say very misleading things to you about how the market works and what is important when picking a dealer to work with. To get a better idea of what is really going on behind the scenes, let’s take a look at who all of the forex market participants are and how they relate to each other...

For the rest of the article and a video, click here: http://www.pfxglobal.com/index.php?o...966&Itemid=117
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Strange Market Mechanics.

The Equity Markets are trying to find a base.

The Dollar is getting bought so that Trade Desks can buy US Treasuries.

The 10 Year Treasury Note is going higher, the 10 year Yield is hitting all-time lows.

Trade Desks are not paid to sit in Cash.

There could another Rate Cut coming on the 30th from the Fed.

That will flood more Treasury Notes into the Market.

Reducing the 10 year Yield.

So, Trade Desks will have to buy Equities to get a return over the 3.4% Treasury Yield. (No bonus comes by matching the 10 year Yield at the end of the year).

OR, go Long the Higher Yielding Currency Pairs to earn Swap/Overnight Interest.

Aussie, Kiwi, Pound, Euro, they all pay out Interest to hold them Long against the US$, how strange does that seem? So, sell the Yen as well then.

The trigger to all of this?

The US Equities closing in the positive. It is coming, make no doubt, the Markets are talking to us. The Blow-Out Bottom has arrived.


Yours Sincerely

Jack

TheLFB Team
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There was a big shift in institutional sentiment Friday, with a shift to a net short position on the USD/CHF and big changes in the sentiment line on the EUR/USD (long), USD/CAD (long) and the USD/JPY (short.) The shift in sentiment and net positions has added even more emphasis to a change in the market. I think the continued theme for 2008 with be a weak USD and high volatility/risk.

The data that I am referring to is from our COT report charts. The COT report graphs the net long or short positions of institutional traders in the currency futures market. The sentiment line shows the rate of change from a net short or net long position. The chart is updated each Friday and is included in the institutional ranking we prepare for the majors.

To see the video, click here: http://www.pfxglobal.com/index.php?o...926&Itemid=149


If you are not familiar with COT charts, click here for an overview:
http://www.pfxglobal.com/index.php?o...640&Itemid=190

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Standard and Poor's has done some statistical studies regarding how the S&P 500 (and therefore carry trade pairs) change price as the economy moves into and out of a recession which could serve as a guideline in 2008.

Trading The Dive

The first question is whether the economy has already entered a recession. While the NBER won't label one until months after it happens, David A. Rosenberg from Merrill, Bill Gross from PIMCO, economist Nouriel Roubini along with former Treasury Secretary Lawrence Summers believe the economy entered a recession in December 2007. According to the NBER, "a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales" and the statistics so far would seem to bear this out. Additionally, the government's plan for a fiscal stimulus package and the Fed's allusion to "substantive further action" certainly indicate their concerns about the economy going forward.

Standard & Poor's found that on average, its index fell 26% from the months leading up to a recession to the recession lows. From the market peak on Oct. 9, stocks as of Jan. 18 have lost more than 15 percent of their value, which implies another 10% loss on top of the 10% already lost this year. That could take the S&P 500 to the 1200 area and by extension, GBP/JPY to around 187 at the trough.

Trading The Rebound

According to the NBER, the typical recession since World War II has lasted 10 months. Standard & Poor's found that if you measure the market’s performance from recession lows, in the last 10 recessions stocks rose 26% on average in the six months after hitting the trough. It's likely that these statistics are very well known among market observers and that no matter how bad things look now, an end while come to the current downturn. So if the S&P does lose another 10% the thing to do would be to take a look at the economic situation. If economists are seeing some light at the end of the tunnel, a buying opportunity could present itself that might have you feeling very smart by next Christmas. Carry trade pairs like GBP/JPY will appreciate right along with the equity markets and 1000's of pips would be available in a bull market.

Chance For A Rebound

If the Fed reduces rates another 100 basis points as expected, while the government passes a Fiscal Stimulus package, there's a good chance for those monetary and fiscal policies to cushion the blow and eventually exert a positive effect on the overall economy and in the Equity/Carry trade markets. Stock valuations (P/E ratios) which approached 40 in the final stages of the 2001 recession are only around half of that now, which indicates stocks aren’t nearly as expensive. And because profits are expected to dip in Q4 07 and Q1 08, a small bounce in Q2 profits could be taken as a sign that a bottom has been reached.

On the Other Hand

The dynamics of this decline are far different. The "financial innovation" of securitization has had the effect of spreading the losses from the U.S. sub prime debacle on a global scale that's never been seen before. Most, if not all mortgage backed securities were bought with insurance from bond insurers who may ultimately default on payments to the holders of all that bad paper. Also, there's the matter of untold $Billions of "side bets" in credit default swaps which could go belly-up in the case of an industry wide, bond insurer melt down. If this happens, all bets are off as regards a relatively short, mild 2001-style recession.

Housing Should Signal the Bottom

Given the above scenario doesn't materialize the crucial indicator will be housing, which started the economy's decline. There's an old expression that's well known in the markets-"Housing leads the economy into and out of recession" and there's no question that's exactly what happened this time around. Inventories are currently sitting at an abnormal 11 month overhang of supply and I would look for a decline in inventories to between 5 and 6 month's supply as a sign that housing has bottomed. That might the best indicator to use in finding a bottom for the market and a base from which a 26% improvement may be seen.
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by Ryan Teeples

The US economy is rife with speculation and panic right now, and many economists are making predictions about the pending Fed rate cuts. As you have probably heard, a half-point cut is almost a sure bet (100% probability according to the futures market), while a .75 percent cut is considered a strong possibility by many.

But what about looking beyond this next announcement? As a long-term trader, I'm not as concerned about what will happen next week, as I am about what things will look like this summer.

As I was persuing the commentary out there this morning, I caught a little nugget of a comment from Burton Malkiel, the Princeton University economics professor who wrote "A Random Walk Down Wall Street.'' The article was an interesting one about China, but the snippet I refer to was about US rates.(http://www.bloomberg.com/apps/news?p...efer=exclusive )

He predicts the Fed will lower rates all the way to 3 percent this year, and expects lowering to continue throughout the first half of this year.

Take what you will from such a "prediction," but the fact is, as traders, we should consider what may happen if rates did take such a course. Whether Malkiel is right or wrong, it seems likely that things are going to get worse for the dollar for quite a while before they get any better.

Here's a great article to help you understand the factors that go into rate adjustments, and an explanation of the difference between the Discount Rate and the Fed Fund Rate:

http://www.pfxglobal.com/index.php?o...480&Itemid=116

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Several factors started working for the buck all at once lately. And they all started hitting on all cylinders yesterday. Oil went down from a new all time high of $100 a barrel to under $90 within the last nine trading sessions. Gold fell from a new all time high of $916 an ounce down as low as $877 with two days. That’s a fall of almost $50 in two days.

Since oil and gold tend to trade inversely to the dollar, this aided the dollar’s recent rise. However, the biggest facet was the “rabbit” that the ECB “pulled out of its hat” yesterday.

European Central Bank’s Mersch came out and stated that “downside risks” were a concern. Formerly all they talked about was “fighting inflation” and now they drop this “bomb” on the market. They are now concerned about an economic downturn in the growth of their economy.

This surprise forced the EUR/USD to drop a whopping 230 pips in about 3 hours. Needless to say it was a “shocker” to the markets and that’s why traders reacted as they did.

This could have been “strategically” done since the ECB is not known for wanting to shock the markets. However, I know they hate the exchange rate being near 1.5000. It’s putting a death grip on their export sector. So this may have been planned.

Formerly traders thought the ECB would raise interest rates one more time. Now traders have to consider the possibility of a rate cut. Wow, what a few days make. This may be enough to take the wind out of the sales of EUR/USD. I know the buck sure liked that surprise. It got a breath of fresh air as the EUR/USD pair sank.

The selling in EUR/USD also caused a “spillover” effect onto EUR/JPY. The euro selling pressure unwound this carry trade even further (like it was needing help unwinding in the first place).

Now that the ECB’s “cat is out of the bag” the U.S. Fed can lower interest rates and it may not sink the dollar as much now as it would have formerly before this information was known.

Right now the futures market is pricing in a 100% chance that the Fed will cut by 50 basis points this time. So we’ll see (on the 30th) if the market gets it right.

As these Sovereign Wealth Funds continue to come in and “save the day” for American corporations, it will also add support for the beaten down buck.

Sean Hyman
www.worldcurrencywatch.com

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If you happened to read my "Close To The Bottom" article from Sunday let me give you an update on that by telling you that my opinion there was completely wrong. The facts are that descent has not even really begun.

If you want to accuse me of flip-flopping a bit here that's your prerogative, but the idea for me is to get things right. Besides, my Bearishness has been evidenced here since last summer so I hope that allowing me one day of being wrong is not too much to ask of you. Be that as it may, I welcome your comments as always and I thank everyone who reads my posts. Let's get to it.

A deeper perusal into the Citigroup data is what's got me back into a bear-like hibernation as far as any type of equity investment goes, because when I looked at it the hairs on the back of my neck stood up and a wave of fear stabbed me in the gut. What Citi had to do (and what every lender will be doing) and the implications for the U.S. consumer-led global economy will tend to do that to you.

The shock in the Citigroup report was the big jump in credit costs to $5.4B which included a charge of $3.31B to increase US consumer loan loss reserves. The provision is up from just $127M a year ago, a 2500% increase!

And it's not just Citigroup. Have a look at American Express (higher-end consumers) and Capital One. They're taking losses on their on their consumer portfolios and making higher loan loss provisions as well.

The problems go beyond first mortgages. Sub prime is so 2007. The new thing will be the disaster that's about to befall second mortgages, unsecured personal loans, credit cards and auto loans as the sub prime contagion spreads to those areas in 2008. The increase in reserves clearly indicates that Citi believes the health of the U.S. consumer is likely to get far worse going forward as the U.S. and thereby the global economy heads into a downturn that could possibly be more deep and dark then you want to be thinking about. The only thing is that we all better start thinking about and preparing for this now and I mean right now.

Grab some popcorn, because you are about to see a movie called Night Of The Living Dead Economy, aka Dead Economy Walking. Only this ain't no movie-it's real, it's here and I for one am not going to get caught in this theater after they lock the doors.

We are talking about a U.S. consumer led global recession that no economy will escape. Perhaps some economies won't fall as far, but they will all be affected. Decoupling is dead as a concept-it's all about Re-Coupling (RE: Nouriel Roubini) and that includes the export-driven emerging markets-Brazil, Russia, India and China (BRIC's).

Yes, I'm yelling Fire! and you know what? There's no 911 to call and put it out before a massive amount of damage can be done. Forget rate cuts and forget fiscal stimulus. The economy is about to get it with Hurricane Katrina and the San Diego Fire at the same time. That's what the effects of a massive slowdown and contraction in consumer spending will have on the economy as a whole.

There is nothing that is going to prevent this U.S. consumer spending-led recession from occurring and spreading into a global disaster, much as those natural disasters couldn't be stopped from spreading their destruction. They can be fought and this will be too, but just as when a natural disaster strikes the only thing that can really be done is to fight the good fight and prepare for the damage to come because when this disaster has passed, the economy is going to look like New Orleans and San Diego rolled into one.

In this type of situation the best thing to do may be to buy, in no particular order, Gold, a Safe and some Concrete. Take the Gold and put it in the Safe. Then go into your backyard and dig a nice deep hole. Reinforce the hole with the Concrete. Place the Safe (with the Gold already inside it) into the Concrete-reinforced hole and cover it up.

As a currency trader, the pairs to trade are the carry trade pairs-GBP/JPY, EUR/JPY etc because when equities go down, carry trade pairs follow. But you still need to work the charts to get a good price.

Thanks for reading my post(s) and please use the box to vote. If you'd like to try trading this with me, you can join my room for just ten bucks a week (with no commitment). Join on my blog: thenewstraderfx.blogspot.com

Contact newstraderfx@yahoo.com with any questions
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The market paused somewhat today as traders reevaluated positions and considered the inflation reports from early in the session. Risk is still high in the USD/JPY, AUD/USD, NZD/USD for a move back against the breakout this week and it could be triggered by a possible early intervention by the Fed. I see the opportunities out there being triggered by a move back down by the USD in general. The GBP/USD is looking better and a bounce off support on the EUR/USD could take us right to 1.5000 in the near term.

In today's pairs video I will look at the partial retracement today on those pairs we were concerned about and evaluate possible targets for the other majors.

To see the video, click here: http://www.pfxglobal.com/index.php?o...896&Itemid=149
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Like most things, people can get emotionally attached to dealers. I think this is a huge mistake. Your dealer is your vendor, they work for you not the other way around. I make mine work for their spread. In fact, I have more than one account to take advantage of competitive differences as well as for "dealer diversification" since you never know what might happen. One of the ways that I evaluate a dealer is by calling them and asking questions.

I think it is a good idea to call your dealer(s) frequently to ask questions. See how well they are able to answer them. If you find that they cannot consistently answer hard questions or if they give you the wrong answer it may be time to think about the level of professionalism in the organization and the security of your account.

I wrote this article and video to answer a question about forex and future pricing that I get all the time and it is a good one to ask your dealer. Forex pairs do not always have the same notional value as many traders assume. That means that volatility from one pair to another will be affected by the actual notional size and not just the individual currency characteristics. See if you dealer can explain to you why.

To see the video, click here: http://www.pfxglobal.com/index.php?o...894&Itemid=117
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I am sure this article will inflame some of the opinion leaders out there but I think the real risk for short term traders is a big whipsaw. While it is certainly possible that the market may continue the direction it broke out today - in favor of the USD - there is a big reason or "known unknown" to worry about a big move back down. I am referring to the possibility of intervention by the Fed. Today's movement was driven by an escalation of risk in the market. The USD retail numbers made everyone very nervous about risk in general and carry traders, stock traders and bond investors made their moves. If the Fed jumps in, which has rarely been more likely, and reduces rates mid period confidence will be restored, at least in the short term, and the movement today will be erased. If you are inclined to short the AUD, NZD or USD/JPY it may pay big dividends to have some strong risk control in the form of an option's hedge, tight stop or other contrary position in place. In today's video I will walk through each of the risks that I see for today. To see the video, click here: http://www.pfxglobal.com/index.php?o...889&Itemid=149 __________________ Analysis by Profiting With Forex (PFX)

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1/15/2008 – EUR/USD – As of this writing, the big news on the EUR/USD, of course, is that price has just approached the all-time historical high in the pair. In fact, as shown on the displayed EUR/USD daily chart, an approximate double-test occurred on the Monday and Tuesday price bars that came as close as 40 pips from the all-time high. In addition, as it stands now, a rough inverted head-and-shoulders pattern has formed, and is highlighted on the chart by the large yellow oval. As price is currently right on top of an extremely important support/resistance zone, the question, as always, is where the pair is heading. From a purely technical standpoint, since price action has performed a double-test at the extreme and oscillators are pointing down from extremely overbought, some signs are indicating as of this writing that an upmove failure may have occurred. On the other hand, the inverted head-and-shoulders formation is hard to ignore, and may point towards a possible impending break of the all-time high. Price action within the next few days will provide further direction, and Chart-of-the-Day will revisit this crucial pair if and when any directional triggers occur.

James Chen
Chief Technical Analyst
FX Solutions

IMPORTANT NOTICE: These comments are for information purposes only. The information contained on this document does not constitute a solicitation to buy or sell by FX Solutions, LLC., and/or its affiliates, and is not to be available to individuals in a jurisdiction where such availability would be contrary to local regulation or law. Opinions, market data, and recommendations are subject to change at any time. Forex trading involves substantial risk of loss and is not suitable for all investors.

(Chart courtesy of FX Solutions' FX AccuCharts. Price on 1st pane, Slow Stochastics on 2nd pane; horizontal support/resistance lines in yellow; 200-period simple moving average in light blue)

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From a technical perspective there is always something going on in the market. Besides the potential bottom I am looking for on the GBP/USD that I talked about last week, I see two more interesting formations or benchmarks on other pairs.

First, although I am very bullish on the AUD/USD we are creeping closer to the gap that appeared when the market broke down in mid-November. A break that includes a gap is a significant resistance zone. If the market returns to that level it has the potential of forming a "dead cat bouce." This pattern is completed when the market turns back around and reaches new lows after being turned back at the gap's resistance level. Another 150 pips and we are in the danger zone - definitely a pattern to watch.

Second, the USD/JPY seems to be consolidating and breaking out of a small flag pattern. The downside potential here may be the lows from November at least, however, I am watching for a potential breakdown in the S&P 500 below 1380 before I get too concerned.

To see the video, click here: http://www.pfxglobal.com/index.php?o...851&Itemid=149
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by Ryan Teeples

As if the US economy needed more reason to lament, now we find that US holiday retail sales look like they may be the worst in seven years. (http://www.bloomberg.com/apps/news?p...OVU&refer=home )

Plus, consumer spending (which is 70% of the US economy) and price growth are expected to cool, meaning a rate cut is all the more likely.

"Smaller price increases may ease concern over inflation, giving Federal Reserve policy makers more reason to lower the target interest rate again this month to prevent recession," Bob Wilis at Bloomberg wrote this morning.

This is on the heels of Bernanke speaking in Washington Thursday, where he said "The demand for housing seems to have weakened further, in part reflecting ongoing problems in mortgage markets.''

This reflects the fact that delinquency on subprime mortgages climbed to 16.3percent in Q3 last year, the highest in a decade.

Basically, inflation is becoming less and less of a concern, as things aren't getting better for the US economy or the USD, and it's likely that Bernanke and the Fed won't shock the markets but will go ahead with a half-point rate cut.

It might even come outside a regularly scheduled Fed announcement as an esteemed associate of mine, John Jagerson, pointed out in this article:
http://www.pfxglobal.com/index.php?o...846&Itemid=117
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Updating time : 13/01/2008 23:19 GMT


USD/JPY - 108.72... Although the greenback continued to edge higher last week to 110.13 partly due to cross-trading, subsequent sharp retreat signals the recovery fm this month's low of 107.90 has ended there n decline fm 114.66 top shud resume but below said sup is needed to confirm n bring a re-test of 2007 low at 107.22 (Nov) later this week.

Looking ahead, once aforesaid key sup at 107.22 is penetrated, this wud extend the major fall fm last year's high of 124.14 to 105.41 (equality proj. of 124.14-111.60 fm 117.95) n possibly twds 104.20 (May 2005), however, as dlr's MT broad outlook remains consolidative, reckon downside shud be ltd to 103.65 n price shud hold well abv major chart sup at 101.67 (2005 low).

Only abv 110.13 res wud risk stronger retracement to 110.48 (38.2% r of 114.66-107.90), however, 111.28/30 (50% n prev. sup) shud limit upside n price shud falter below res at 112.10/20.

Today, expect decline fm 110.13 to extend to 108.25 but sup at 107.90 wud hold fm here. Only a firm breach abv 109.22 wud defer bearishness n risk 109.72 but as long as res at 110.13 holds, another fall is still envisaged later..


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Investors and commentators tend to oscillate between extremes. Lately it seems like most traders feel like the UK is in full economic collapse. The trade report today is being "pounded" as more evidence for a terrible future on the GBP. There was a great summary of the announcement on Bloomberg today, you can find that here: http://www.bloomberg.com/apps/news?p...8y85I&refer=uk

The article makes a good point; the deficit widened because of demand. The data lags a full month but good demand is not particularly indicative of an economy circling the drain. In fact, if you look at the numbers, although the deficit widened both exports and imports increased. If they had both shrunk or if exports had declined I would be a little more concerned. For my own analysis it makes be wonder if we are due for a bounce on the GBP/USD in the 1.95 range.

Check out the GBP/USD analysis here: http://www.pfxglobal.com/index.php?o...361&Itemid=231

You can also see historical announcement charts here: http://www.pfxglobal.com/index.php?o...782&Itemid=190

GBP/USD

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I wanted to add some video content to the blog article I wrote this morning about the potential in the GBP/USD with this post. However, besides the forecast on the GBP/USD we will look at the other majors and in particular the commodity currencies in today's video pairs - So check it out.

I think the GBP/USD has hit a bottom for a few reasons. The first is that the USD is only going to look weaker, falling yields, soft equities and economic uncertainty as we get ready to deal with the presidential race have be biased against the USD. Second, from a technical perspective, the GBP/USD has formed a bullish divergence. In this case I used a 14 period CCI to evaluate the divergence and illustrated that in the video. Divergences have been very useful on this pair in the past. This divergence is also true when you look at the pair's implied volatility levels. Risk does not seem to be spiking with the new lows. Finally, the news today about rising imports and exports indicates stable demand in the economy and didn't throw up any red flags when I read the data. Check out the video and make up your own mind.

To see the video, click here: http://www.pfxglobal.com/index.php?o...836&Itemid=149
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GBP-USD @ 1.9616/20……..Holding Long
R: 1.9670 / 1.9710
S: 1.9600 / 1.9575 / 1.9525
GBP-USD has had a sharp fall during the day once again and it is currently standing on its Support of 1.9650-20, which has been holding since June-2007. A sustained break below this could see a sharp fall towards 1.9300 in the pair in the next few days. Note that the BOE meets tomorrow and their interest rate decision is likely to impact the pair in a big way. See historical UK gilts yield chart at http://www.kshitij.com/graphgallery/gbpsin00.shtml

The Support for the day below 1.9600 would come in at 1.9575, the statistically projected Max Low for the day. On the upside the Resistances currently are at 1.9670 and then at 1.9710. We are holding a long position currently, which has high chances of bring stopped out.

Limit Buy Order:
Buy GBP 10K at 1.9680, SL 1.9610, TP 1.9810

See UK Interest rate and BOE Libor rate at
http://www.kshitij.com/fundamentals/...ts/ukboe.shtml

See UK Trade Balance chart at
http://www.kshitij.com/fundamentals/.../uktrbal.shtml

USD-CHF @ 1.1135/40….…Resistance near 1.1200-10
R: 1.1150 / 1.1200-04
S: 1.1100 / 1.1050-44
USD-CHF has had little move during the day so far and the pair is maintaining above its Support of 1.1100 since the morning. This would be important later today as well. A break below that would restart the bearish bias for a fall towards 1.1050-44, the statistically projected Max Low for the day. Below that the Support would be at 1.1025 on a trendline on the Daily Charts joining the lows of 1.0887 (23-Nov) and 1.1019 (04-Jan).

The Resistances currently are at 1.1150 and 1.1200-04, the statistically projected Max High for the day. We don’t hold any position currently.

AUD-USD @ 0.8834/38...Resistance of 0.8850 being tested
R: 0.8847-50 / 0.8890-8900
S: 0.8770 / 0.8750 / 0.8720-10
AUD-USD hit a high of 0.8861 earlier today on its trendline Resistance on the Daily Charts joining the highs of 0.8955 (21-Nov) and 0.8908 (12-Dec), and is currently trading just below this level. This would be an important level going forward and a sustained move above 0.8900 would indicate on the uptrend gaining momentum. However, while that holds there are chances of a fall towards 0.8720-10 on the downside, on the trendline on the Daily Candles joining the lows of 0.7674 (17-Aug-07) and 0.8559 (19-Dec-07).

Today the Support is at 0.8800 and 0.8770. A break below the latter would indicate that a fall towards 0.8710 is underway. On the upside Resistance above 0.8845 would come in at 0.8890-0.8900, the statistically projected Max High for the day. We don’t hold any position in the pair currently.

Happy Trading!
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Oil is a complex market. Even people in the industry have a hard time understanding what drives prices. I was once in a work group with a senior executive from British Petroleum. At one point, I was using oil charts to illustrate some analysis we were doing. Acting incredulous, she asked me why I would bother since oil prices are solely supply-side driven. It was a weird question to me as a trader who tends to see things in terms of spot prices equaling the intersection of the supply and demand curves. Obviously, there are supply side influences in oil prices but speculation in oil prices is a very healthy market. I am sure my outlook seemed just as absurd to her.

However, that experience did make me think about the unique and complex relationships that oil prices have in the intermarket environment. In today's video I will look at why some of the forex pairs we would expect to follow oil are diverging, why they may not affect forex prices in the near term and some of the opportunities this presents to traders.

To see the video, click here: http://www.pfxglobal.com/index.php?o...our+submission.
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Attached Thumbnails

Hi....

Interesting long term view, and indeed probably a correct one! I just
wanted to bring to your attention tht there was a similar pattern that
developed at the beginning of 2005. In this case, however, EUR/USD
broke through the lower wedge, likely due to a series of increases in
interest rates (fundamental support, which does not exist right now).


The similarities of these two periods were actually mentioned by James
in 2007. Now it seems that this pattern is continuing. Question is, for
how long? Probably not very long. In my opinion, look for a bounce off
of resistance at around 1.4500 followed by an upward march toward
1.5000/1.6000.


Finally, the fact that these consolidation triangles takes place toward
to beginning of the year makes sense... investors are trying to guage
trends, risks, and possibilities for the next year. Especially now, at
a time when investors are trying to guage the possibility of a U.S.
recession.


Take care and happy pip hunting to all!


rudenstein

The ECB is expected to hold rates on Thursday and while ECB President Jean-Claude Trichet is expected to sound hawkish at the press conference, economists (and traders) believe the ECB will find itself unable to raise rates in coming months. The knock-on effects from the global credit crisis and sub prime debacle will liklely slow Euro-area growth to around 2.0 percent in 2008 from 2007's 2.6 percent rate.

There are reasons enough for Trichet's hawkish tone; Inflation held at 3.1% in November and December, far above the ECB's 2.0% target and he said on Jan. 5 that the economy faces a "more protracted'' period of elevated inflation than previously expected, due to the "substantial increase'' in oil, food and commodity prices which is "having a strong upward impact on inflation.'' The "danger of second round effects" in some economies and the risk of inflation "spiraling" was considered "an important risk calling for no complacency."

Prices paid to European manufacturers accelerated in November by 4.1 percent from a year earlier, the fastest pace in almost a year, because energy costs jumped 7.8 percent in November after rising 4.2 percent the previous month. Excluding such costs, producer prices rose at a still-uncomfortable 3.2 percent from a year earlier.

Also, unlike the Federal Reserve the ECB takes the money supply into consideration when making policy. Eurozone November M3 was up a strong 12.3% on a year-over-year basis (unchanged from Oct).

As far as the global credit crisis is concerned, on January 6th at the BIS meeting Trichet said central bankers were "very satisfied'' with their efforts to calm money markets. The ECB injected an unprecedented $500B in the economy last month and Trichet indicated that further Central Bank actions were possible even though that he had "very good reason'' to consider that financial institutions will act to "appease those tensions'' on money markets. "What we did was very important and I would say helped considerably to stabilize the situation,'' Trichet said. "But we never said we could change the overall situation. It's a process which is ongoing.'' And even though Trichet believes the impact of the market "correction'' on the real economy "is still to be fully understood," he still see's "growth continuing at a pace which is quite robust, even if there is a little bit of a slowing down."

However, despite all the hawkish rhetoric there are serious downside risks to growth in external demand stemming from the expected slowdowns in U.S. and U.K. economies. On December 7, the OECD said the Euro area’s Composite of Leading Indicators decreased by 0.1 point in October and stands 1.9 points lower than a year ago. And despite a strong job market, consumer confidence is waning. Eurozone retailers experienced a poor month of December, according to the Bloomberg Eurozone Retail Purchasing Managers' Index. The index was little-changed in December from the previous month's 45.9, at 46.0 and was the third-lowest figure in the surveys four-year history, signaling a decline in euro area retail sales for the third successive month. Germany's retail sales, adjusted for inflation and seasonal swings, fell 1.3 percent in November, after sliding a revised 2.3 percent in the previous month while production fell 0.9 percent in November from October.

So even though the ECB has sounded quite hawkish lately, due to the "ongoing process" of easing credit market tensions, potential U.S. recession and expected moderation in growth the ECB is very likely to take a "wait and see" approach, which means you should not expect to see an increase in the main target rate anytime soon. Bloomberg noted that, "Interest-rate futures yesterday showed traders pared bets the ECB will raise interest rates this year after reports showed German industrial production, exports and retail sales unexpectedly declined. The implied yield on the Euribor June futures contract fell 4 basis points yesterday to 4.34 percent."

Still, even with the downside risks for growth don't expect to see the ECB reduce rates anytime soon. Aside from the fact that inflation and money supply readings are high, many in the bank view the U.S. sub prime crisis to partially be the result of loose monetary policy which kept interest rates too low for too long and believe it's dangerous to use monetary policy as a stimulant for the business cycle and economy. And although growth is expected to slow, the ECB fully expects the Euro-area economy to withstand even a modest recession in the U.S. and U.K. economies. Along with good levels of job creation, business investment (because of generally strong corporate balance sheets) and exports to emerging market economies are growing.

EUR/USD has basically traded in a 400 pip range since the begining of December and could stay within that range until things become more clear. The bottom line is that the ECB is far closer to raising rates then the Fed and is likely to move as soon as conditions allow.

Thanks for reading my post and please use the box to vote. If you'd like to give my trade room a try, you can for ten dollars per week. Join on the blog: thenewstraderfx.blogspot.com Contact newstraderfx@yahoo.com with any questions.
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Don't be surprised to see the BoE pro actively reduce rates at this week's meeting. Tighter credit conditions and a slowing housing market are projected by a number of economists (and by the BoE itself) to constrain investment and consumer demand at the same time that inflation (as projected by the OECD) is projected remain close to the 2% target over the next two years. BNP Paribas noted that "as opposed to the past when the BoE tended to make policy changes in the same month as the Inflation Report release, three of the last four interest rate moves came outside of Inflation Report months."

BNP also noted that "the composite of the two Chartered Institute of Purchasing and Supply (CIPS) surveys provides a pretty accurate sneak preview at the likely growth rate of GDP, months ahead of the official release. The fall in the
CIPS surveys to date points to a slump in the growth rate, from around 0.7% 0.8% q/q over the last eighteen months, down to around 0.3% q/q in the coming few quarters". But there are even more ominous indicators.

According to BNP, "the quarterly CBI financial services survey released 3 months ago proved to be an accurate leading indicator that the services sector CIPS was likely to plunge (as it did). The latest update to that survey was released on Monday and suggests the fall in the CIPS services survey has at least another 5 points to go. During past crises or sharp downturns, the fall in the CBI series is a pretty good guide to where the CIPS will go. In the context of
growth, expansion of 0.3% q/q is probably the best we can hope for in the early quarters of 2008 – more likely we will get readings closer to zero".

The BoE said in the December minutes that “the prospects for demand both globally and domestically are somewhat weaker than previously anticipated” and that “to keep inflation on track to meet target over the medium term the committee judged that it was necessary to reduce interest rates”.

J.P. Morgan sees weakness in the first half of the year followed by a "slight pickup" in the second. "In contrast to the
2004-05 downturn, the most reliable and timely indicator of current growth momentum—the service PMI—has
already fallen sharply below its average". They believe the MPC’s "willingness to move policy rates lower will be important in limiting the behavioral shifts associated with slower growth for both households and corporates."

A serious threat faces U.K. consumers from falling house prices after several years of ten to twenty percent gains and there's evidence that consumer confidence is eroding because of muted real disposable income growth and heightened debt levels. Mortgage re-sets have increased payments and a sharp slowdown in government spending which had helped to support growth is occurring. The deficit has risen to over 6.0% of GDP, which means that fiscal stimulus will be difficult to implement and that the economy will be more dependent of fast action from the BoE.

Bloomberg notes, "there was a 61 percent chance the Bank of England will lower its benchmark interest rate a quarter-percentage point from 5.5 percent today, according to a Credit Suisse index of probability derived from overnight indexed swap rates".

"If the U.K. enters a series of interest-rate cuts, more people will believe that the credit crisis will continue to move eastward and hit Europe next,'' said Mark Meadows, a strategist at currency-trading company Tempus Consulting Inc. in Washington. "People are getting anxious and buying back dollars against Sterling and a little bit against the Euro.''

The WSJ presented an interesting perspective: Chancellor of the Exchequer Alistair Darling said at a news conference that Britain's relatively low inflation rate meant the Bank of England could cut rates again.

"Inflation is amongst the lowest in the [Group of Seven leading industrial nations], and that gives us the flexibility to face the present times," he said. "That has enabled the Bank of England to cut interest rates and gives it room to make further reductions -- if it believes it would be right to do so."

It would seem that all available evidence points to the need for the BoE to lower interest rates by 25 basis points in both the first and second quarters of 2008. The Bank has acted pro actively before and because the risks to growth would seem to outweigh those for inflation, a move by the BoE at this time appears to be justified.

Thanks for reading my post and please use the box to vote. If you'd like to try trading the economic information with me, you can for just ten dollars a week (no commitment). Join on the blog: thenewstraderfx.blogspot.com
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The evidence for a continued rise in the risk levels in the forex continues to mount. The whipsaw during the North American session following very troubling housing numbers in the US is the perfect example. Implied volatility levels are still hovering near highs on the commodity and carry trade pairs. That risk will increase volatility and could make trading a little rocky in the near term, especially for longer term traders.

In today's pairs videos we will take a look at the fundamental changes that have emerged as well as update the opportunities on the EUR/USD and NZD/USD.

To see the video, click here: http://www.pfxglobal.com/index.php?o...808&Itemid=149
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- Aussie retail sales stronger than expected in November: (AU NOV RETAIL SALES: 0.8% V 0.5% expected, prior revised to 0.3% from 0.2%) Aussie consumers continued to spend in November despite the interest rate hike by the Reserve Bank of Australia at the start of the month. It is also interesting to note that Aussie spending increased despite a 6.0% increase in gas prices during November. Analysts pointed out that retail sales were strong across the country and not just in the resource-rich states, which should give the central bank added confidence that demand is strong enough to justify an interest rate hike in February. AUD/USD traded around 0.8790 before the data, and peaked above 0.8840 in the few hours after the release. Some chartists expect AUD/USD to remain well supported until the end of the week, considering the formation of a double bottom at 0.8680/85.

- More evidence of inflationary pressures in Australia's economy: (AU NOV JOB VACANCIES: 6.0% V 2.9% prior, Job vacancies rose 13.1% in the year to November) Lehman Brothers Australia chief economist Stephen Roberts said the rise in job vacancies could cause further wages growth, but added that labor supply had also been boosted, countering some of the upward pressure on wages.

- Forex: The USD was mixed in Asia after a late afternoon meltdown on Wall Street. Analysts said that it looks like the market is pricing in a steeper than expected Fed interest rate cut, and this kept the greenback on the back foot for most of today's session. JPY firmed at the start of the Asian morning, but softened after USD/JPY found support at 118.80 and stock markets recovered from early selling. Sterling was little changed in Asia, with some suggesting that much of the recent negative economic news has been priced into the currency. "It's hard to discern any significant trends in FX right now," said Nick Bennenbroek at Wells Fargo. "I think the currency market is trying to figure out which is the way to lean here in terms of how the economy is going to pan out."

- New Hampshire primaries: Hillary Rodham Clinton on Tuesday squeaked out a victory on Tuesday in New Hampshire's primary, slowing rival Barack Obama's momentum. Senator John McCain powered past his Republican rivals and back into contention for the GOP nomination.

- Equities: The Bank of New York index of Asian ADRs fell -0.9% by the end of the U.S. session. At 22:57 ET Japan's Nikkei is -0.22% after recovering from an 18 month low at the start of the session, the S&P ASX200 index is -1.02%, South Korea's KOSPI is -0.44%, and the Shanghai Composite Index is +0.20%. The S&P futures contract recovered from the late afternoon sell-off on Wall Street, gaining +0.21% between 16:30 ET and 23:00 ET.

- Commodities: Nymex crude oil gained +0.32% between 18:00 ET and 23:11 ET, last trading at $96.64/bbl. Asian investors bought oil ahead of tomorrow's weekly U.S. crude inventories data, with some expecting U.S. crude inventories to drop for the 8th consecutive week. Spot gold prices climbed to a new record high as some analyst suggest we haven't seen the last of the funds piling in. There is a growing consensus that gold's bullishness is mostly due to funds' reallocating money to gold at start of 2008. Shanghai copper is up by its +4.0 daily limit.

(by Eben Esterhuizen)
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Technical Studies;
Bollinger Bands, MACD, Stochastic, RSI

The LFB Team

Introduction
There are hundreds of technical studies available to the trading public. While all are valuable trading tools, there are several that consistently make their way onto trading screens Globally. These studies stand out amongst their peers due to their simplicity and reliability. They are Bollinger Bands, MACD, Stochastic, and RSI;

Two of them work well in Trending Markets, and two work well in Channeling Markets. If you already understand what makes each one work, then there notes at the bottom that explain what ones work, and why, in certain economic conditions. The Forex Market is in a sideways moving period, and as such allows less opportunity for leaving a trade to run, this may help the newer Traders to understand which Tech Study will possibly provide less 'Head-Fakes'.

Bollinger Bands



These were the creation of famed market technician John Bollinger in the early 1980’s. John created Bollinger Bands as a way to measure if a security was trading at a relatively high or low price. John was one of the first traders to realize that volatility is dynamic, not static, and devised price bands that took volatility into account.

The default setting for Bollinger Bands on most charting software plots two bands above and below a simple moving average. The upper band lies two standard deviations above the moving average, while the lower band is plotted two standard deviations below the moving average. With standard deviation being a measure of volatility, the bands adjust, widening and narrowing in response to market conditions. Widening bands are a sign of increased volatility, while converging bands signal a decline in volatility.

The first way in which traders use this tool is to analyze the width of the trading bands. A prolonged narrowing of the bands is oftentimes a signal that volatility will likely increase sharply in the near future.

Another simple way in which traders can utilize Bollinger Bands is by looking at a security’s price in relation to the upper and lower bands. A security trading near the upper band can be considered overbought, while a security trading near the lower band can be considered oversold. For this reason some traders use Bollinger Bands as levels of support and resistance.

Mr. Bollinger suggests applying Bollinger Bands to a daily chart using a 20-day simple moving average with the upper and lower bands two standard deviations from the SMA.

Moving Average Convergance/Devergance (MACD)



The study was created by Gerald Appel and has come to be known as one of the simplest and most reliable technical indicators available to the trading public.

MACD incorporates both trend recognition and momentum into a single oscillator making it a very powerful trading tool. This oscillator consists of two lines, the MACD line and the signal line. The default setting for MACD subtracts a 26-period exponential moving average from a 12-period exponential moving average to form what is known as the MACD line.

The signal line is then formed by calculating a 9-period exponential moving average of the aforementioned MACD line. These two lines are then plotted together in an oscillator with a horizontal line known as the zero line. The signal line is oftentimes red with the MACD line typically blue. When the MACD is above the zero line it means that 12-period EMA is above the 26-period EMA and vice versa.

The most common way that the MACD oscillator is used is by looking at the relationship between the MACD and signal line. A bullish signal is generated when the MACD line crosses above the signal line and a bearish signal is generated when MACD crosses below the signal line. Traders can also measure the strength of a trend by examining the relationship between the MACD and signal line.

The greater the separation between the two lines, the stronger the trend is. Oftentimes, charting software will plot this separation by means of a histogram above and below the earlier mentioned zero-line. Another way in which more advanced traders employ the MACD oscillator is to look for divergence. Negative divergence is found when a relative high for a security is not confirmed by a relative high for MACD.

It is also found when a security makes a new low, but MACD does not form a new low. This can oftentimes be a signal to a trader that a trend is running out of momentum.

The Stochastic Oscillator



It was developed by George Lane in the late 1950’s as a momentum indicator that compares a security’s closing price to its price range over a predetermined period.

The idea is that a security’s price will typically close near its high and in a downtrend will typically close near its lows. Two lines, called fast and slow stochastic, are plotted in the oscillator that has a range of zero to 100.

The most common setting for stochastic requires three inputs: the first parameter is used to create what is known as the %K line, the third parameter is used to create the %D or signal line, and the second parameter is used to smooth the %K line. The default setting on my charting software uses (14, 1, 3). While some may find these parameters useful, a minor adjustment using 3 as the middle parameter creates a smoothing factor that in our opinion makes the oscillator easier to read.

Typically two lines are drawn through this oscillator, one at 20% and the other at 80%. These lines are drawn to identify overbought and oversold conditions. The most common way in which this oscillator is used is to identify overbought and oversold conditions. When a security’s stochastic oscillator moves above 80% it is often a sign that the current trend may soon lose momentum.

The same can be said when a stochastic reading falls below 20%. It is often a signal that a downtrend is running out of steam and may soon reverse course. As was the case with MACD, many traders look at the stochastic oscillator for divergence from the security price. When a stock makes a new high and the fast and slow stochastic are already moving lower, it is a strong signal that the trend may be over.


The Relative Strength Index (RSI)



The RSI was developed by J Welles Wilder in the late 1970’s. RSI is a momentum oscillator that compares the magnitude of a security’s recent gains to the magnitude of its recent losses. Traders should note that the Relative Strength Index is different than the concept of relative strength, which measures the relative performance of an individual security to a certain benchmark such as the S&P 500.

Like the stochastic oscillator, RSI is plotted on a scale from zero to 100 and typically has two horizontal lines used to determine overbought and oversold conditions. Also like stochastic, the RSI index uses a default setting of 14-time periods, some Traders move that out to a 21 time-frame. The one difference in the parameters is that in the RSI index overbought is typically considered a move above 70%, while oversold is a move below 30%.

The RSI index is typically used to signal overbought and oversold conditions. Traders, like they do with MACD and stochastic, also look for negative divergence between the RSI index and its underlying security. Another way in which RSI is analyzed is when traders look for moves above and below 50%. Moves above 50 indicate average gains for this security have been greater than average losses for the stated time period.


Non-Trending, or Channelling Markets
Now that we have discussed some of the more popular technical indicators and how they are used it may be important to discuss the best times to use these indicators. Oscillators that are confined to a scale of 0 to 100 such as Stochastic and the RSI index work best when the market lacks a major trend. If a security is in a strong trend it will oftentimes remain in what is considered overbought or oversold territory for an extended period of time producing many false signals. However if the market lacks a clear trend, oscillators such as Stochastic and the RSI Index become invaluable tools for determining turning points in the market.

Strong Trending Markets, (not what we have right now)
When a market is in a strong trend, moving average crossovers or MACD will prove most valuable. In regards to Bollinger Bands, they have stood the test of time, producing important signals in both trending and non-trending markets. One very important thought regarding Bollinger Bands that actually relates to all technical indicators is that the longer the time frame, the more accurate the signals.

Jack
TheLFB Team ©
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An enormous trading opportunity will be shaping up in the coming weeks and I'd like to share some of the ideas now in order to get better prepared for them. As usual, the fundamentals will be the driver of overall market sentiment, but we're going to use a different set of fundamentals to trade from.

There's a growing consensus among economists that changes in Monetary policy from the Fed will not be able to do enough by themselves to prevent the economy from going into a serious downturn and that a stimulus from a change in Fiscal policy will be required. The fiscal stimulus in this case will probably take the form of a temporary tax cut.

It's very likely that the current meetings of the Presidents Working Group on Financial markets (a.k.a. the Plunge Protection Team) have been at least in part for the purpose of discussing the ways and means of how they will work and that the actual cuts themselves will be announced during the State of the Union address. It's also very likely that momentum for this is going to be building in market participants and that just as with a change in monetary policy, the markets themselves will trade according to the ultimate outcome of whatever happens from a fiscal perspective.

Former Clinton Treasury Secretary Lawrence Summers has been talking about this since November. In his opinion, the economy requires between 50 and 75 $Billion in temporary tax cuts. Martin Feldstein of the NBER is also suggesting that due to entrenched problems in the consumer and banking sectors, monetary policy changes will not have the same "traction" and that "some kind of fiscal stimulus" is now required. There's a precedent here as well: Bush made a temporary tax cut during the 2001 recession so it seems fairly certain he will want to use the same tactic again. However, the implementation of a fiscal policy change will likely be more difficult from a political perspective because things are very different this time around. Back in 2001, Congress was under Republican control so passing the tax cut was relatively easy. Now that the Democrats have control of the Hill, the actual passage could be far more difficult.

So we will be reading and hearing a lot about Bush's plan for a temporary tax cut in the weeks leading up the announcement in the State Of the Union Address on January 28, which comes two days be before the next FOMC announcement. Momentum for this is going to be building up strongly as the TV talking heads like Larry Kudlow and Jim Cramer start beating on the tax-cut drums and the financial press gets all over the story. And here is how an excellent trading opportunity is likely to present itself.

The day after the tax cut proposals are announced in the State of the Union address is likely to be a very good day in the markets and if the markets gets what it wants from the Fed (a 50 basis point cut), the momentum will be further sustained. After that, things will depend on the prospects for passage in Congress. If it looks like a go, the markets will be well-supported and naturally will do very well afterwards if they pass into law. But if fiscal stimulus turns into another political fight and the tax cut package ultimately fails to pass, the market won't get what it wants which means that a serious downturn will likely be seen from that point.

And BTW-you're likely to hear that if the tax breaks don't come soon, they may come too late to be a real help as far as the economy goes.

I imagine there will be plenty to discuss regarding this over the next couple of weeks and I hope you'll be following this along with me. Thanks for reading my post and please use the box to vote. And if you want to try trading this and other economic information with me in my room, you can for just a ten dollar per week subscription that you may cancel at any time. You can join on my blog: thenewstraderfx.blogspot.com
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GBP-USD @ 1.9731/35...Support at 1.9700 & 1.9652-50
R: 1.9750 / 1.9800 / 1.9838
S: 1.9652-50 / 1.9620-00
GBP-USD closed with losses yet again last week and it has got off to a weak start once again in what is a very important week for the pair. The UK Trade Balance and the BOE interest rate meeting both are on 10-Jan, Thursday, with the BOE meeting the most important. The futures market on interest rates is discounting a 40% probability of a 25bps rate cut to 5.25%. See UK Bond yields chart at http://www.kshitij.com/graphgallery/gbpsin00.shtml

Technically, GBP-USD is above an important Support region near 1.9650 – 1.9620, which held twice last year in June-07 (1.9622) and in Aug-07 (1.9652). This indicates that a bounce could be seen in the GBP in the next few days possibly towards 1.9900 or above. However a break below that Support region could produce another sharp fall towards 1.9300.

Today the Support is at 1.9652-50 and then at 1.9600. On the upside the Resistance is at 1.9750 and then at 1.9810. The statistically projected Max High for the day is at 1.9838.

GBP-JPY is currently trading near its lowest level since Aug-2006, and is also on its strong Support at 213.00-214.00, which falls on a trendline on the weekly charts joining the lows of 148.29 (Sep-2000) and 193.29 (July-2005). A bounce may be seen in the cross if the GBP-USD fails to break below 1.9652-20 region.

EUR-GBP is currently near its highest level since Jan-1997 and is just below its psychological level of 0.7500. The Support for the Cross is now at 0.7400, which needs to be broken to question the potential for further rally.

See UK BOE interest rate and UK Libor chart at http://www.kshitij.com/fundamentals/...ts/ukboe.shtml

USD-CHF @ 1.1159/64...Holding Short
R: 1.1200-10 / 1.1250
S: 1.1140 / 1.1100
After the sharp fall last week in USD-CHF there has been a sharp recovery so far in the day, which could carry on further towards 1.1200-10 later on in the day. A further recovery could be seen later on, if the Resistance of 1.1200-10 is broken on the upside. Immediately above 1.1200-10, the Resistance would come in at 1.1250.

On the downside currently the Support is at 1.1140 and then at 1.1100. We are holding a Short position currently, expecting the Resistance of 1.1200-10 to hold.

Holding:
USD 10K Short at 1.1155, SL 1.1225, TP 1.0990




AUD-USD @ 0.8728/33...Support at 0.8690-88
R: 0.8740 / 0.8800
S: 0.8690-88 / 0.8650
AUD-USD had a sharp fall on Friday and has come down to an important Support at 0.8688, on the trendline on the Daily Candles joining the lows of 0.7674 (17-Aug-07) and 0.8559 (19-Dec-07). This could produce a bounce in the pair once again towards 0.8900. However, if this is broken on a sustained basis then a fall towards 0.8650 and 0.8550 may be seen later on in the week. Australia’s trade balance comes in on 10-Jan. See chart at http://www.kshitij.com/fundamentals/.../autrbal.shtml

For today the immediate Support is at 0.8690-88, on the trendline mentioned above. Below this the Support is at 0.8650. The statistically projected Max Low for day would come in at 0.8624. On the upside the Resistance is at 0.8740 and 0.8810-18, the statistically projected Max High for the day.

We would be looking to take a Long if the Support at 0.8690 holds.

Happy Trading!
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Analysis by FXThoughts