Business-Insider

Analysis by NewstraderFX

A deeper look into the Personal Consumption Expenditures report reveals that consumer spending is slowing at an alarming rate as the housing debacle takes its toll. The spending numbers look even worse when you consider that even though the job market has been weakening, unemployment is still at relatively low levels.

The average monthly increase in spending for Q4 2007 was just 0.1% when adjusted for inflation. The first two months of 2008 (the latest data), shows the average monthly increase to be just 0.05%, a 50% decrease from Q4. However, in downturns such as this revisions to this series are frequently adjusted to the downside, as seen in the month's report which revised Dec. 2007 from 0.0% to -0.1%.

Spending aside, the overall picture of the consumer going forward looks to be very bleak. The savings rate has been negative for 24 straight months, an unsustainable situation that has now come to a head because the consumer's main asset, housing, has depreciated as the real estate market is easily in the worst shape since the Great Depression. The negative wealth effect from the housing bust has been estimated to be around $5 Trillion to this point, which has caused a rise in delinquencies in other forms of consumer credit such as auto loans, student loans, home equity loans and credit cards. So with falling asset values and high rates of debt consumers are not likely to spend, except on the necessities.

Aside from the housing depression, rising layoffs, soaring costs for food and energy and a severe credit crisis have already taken their toll not only on headline Consumer Confidence (as measured by the Conference Board) but in the Expectations Index which is now at a 35-year low (Dec. 1973, 45.2), levels not seen since the Oil Embargo and Watergate. Put this all together and you have the first consumer-led recession since the 1970's.

Don't expect to see J.C. Penney being the only retailer to report weaker sales. The S&P 500 and therefore GBP/JPY can potentially come under renewed pressure this week as most retailers report their March sales, which are not expected to look good to say the least. In January and February, monthly sales at stores open a year (same store sales are considered the most inportant sales indicator) fell at just about every major department store, including Penney, Macy’s, Kohl’s, Dillard’s and Nordstrom.

A forward look at the data for next week suggests the dollar is very vulnerable. Traders will have several opportunities to buy into the rumors of weakened ISM and NFP figures and should those numbers surprise to the downside, expect to see the Euro form a base above 1.60 as the Yen heads towards 95. Manufacturing ISM has the potential to be below consensus based on weakening exports, while the NFP could see job losses of 70,000 or worse, given the rising 4 week moving averages in new and continuing claims.

Technicals-S&P and GBP/JPY Are Still Attached At The Hip

As you can see on the first chart, the S&P made a continuation of the Feb 27 Double Stoch Overbought (DS OB) on Mar 25, which was followed by three days of selling as seen on the second chart (BTW, when the DS OB was given on Feb 27, GBP/JPY closed at 211). Given that the market has been in a huge downtrend and that we still have a DS OB indication, along with the potential to see some really weak-looking data, we would suggest that the market is still vulnerable to the downside. It'll be interesting to see if price eventually closes stoch oversold at a higher price then Mar 10. That would be a DS Oversold and signal an uptrend, but whether that happens or not remains to be seen.

You can see how well the Double Stochastic has indicated S&P (and therefore GBP/JPY) direction-Before the Fed 27 downtrend, the first wave of selling was indicated with a DS OB at the end of Oct. and a second DS OB was made towards the end of Dec. GBP/JPY was at 239.8 on the first DS OB and at 226.95 on the second. With any luck, a DS OS will eventually be given. Fingers crossed.

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by John Jagerson

Mergers and acquisitions are often a sign of economic health. That kind of corporate "friendliness" is usually only undertaken when investors feel like deals have potential to the upside from a growth perspective. Their outlook on the market is a big part of that. With all the news lately of a higher price for Bear and M&As looking more likely for ClearStation and ConAgra I am wondering if an uptrend in corporate activity is a sign of a potential shift in the risk environment. I think we have been teetering on the edge of economic recession in Western economies but this may lend strength to the argument towards recovery.


"Can you feel the corporate love?"

M&As are risky and generally deal teams are not inclined to pursue them at the rate we are seeing lately when you have risk and credit problems as serious as we do now. I will be interested to see how much more this escalates. M&A's matter to forex traders in a couple of ways. First, very large cross border M&A activity can affect the exchange rate between the respective economies. With a boost to the currency of the company that is being acquired. But that is very difficult to forecast and usually mergers are much more complicated than merely paying a price for one company.

More importantly, M&As are a measure of risk and business confidence. Right now we are seeing a lot of specific M&A activity in commodity companies and a fair amount generally. I think this bodes well for trader sentiment in commodity currencies and to high yield strategies like the carry in FX. If M&A activity continues to rise, it is usually a good sign for equities, which could impact currency pairs like the USD/JPY and USD/CHF in the intermediate term. Specifically, as M&A activity rises, we would expect a position trend in both of those currencies as capital flows shift and investor sentiment improves.
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by John Jagerson

We have seen a fair amount of of news this trading session about the boost to European stocks due to the actions of the ECB. It is all good information but is it useful for forex traders? I think it is extremely useful information. Equities are a good gauge for investor sentiment and confidence about economic growth. That can translate into a stronger currency, which can support or disrupt an existing trend in a currency pair.

In today's video I will show one technique you can use to leverage the information from stock prices to signal trading opportunities or periods of higher risk.

To see the video, click here: http://www.pfxglobal.com/video-archi...x-trading.html
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Analysis by NewstraderFX

Tuesday's FOMC statement regarding rising inflation expectations along with the announcement of the Primary Dealer Lending Facility has already exerted a profound effect on currency (and therefore commodity) markets, as seen in the sudden burst of dollar strength against the high yielders. From the release of the statement, the dollar has gained 430 pips on the Pound, 365 on the Euro, 270 on the Aussie and 180 on the Kiwi. The Reuters/Jeffries CRB Commodity Index, composed of oil, gold, corn and 16 other commodities fell 9.2%, the biggest drop since the Commodity Research Bureau started calculating the benchmark a half-century ago as the Dollar Index gained 2.14% this week.

A number of different reasons have been cited in the financial press for the move in the CRB index-commodities were in a "bubble", traders were taking profits (perhaps to now invest in equities) and the threat of a demand slowdown due to the U.S. recession being three. While all seem plausible, that fact is the change accelerated right after the FOMC's statement was released around 14:15 EDT Tuesday and after Goldman Sachs and Morgan Stanley borrowed at the PDLF on Wednesday, in an effort to show leadership and that no stigma should be attached to borrowing there, which is crucial for the program's eventual sucess. Around $58B has already been borrowed.

The FOMC's new inflation language noted for the first time in about 10 years that "some indicators of inflation expectations have risen." What this indicates is that the easing cycle, which is expected to continue, is likely to have peaked in intensity after having taken real interest rates close to zero based on either core CPI or PCE.

The Fed has also gone a long way in supporting investor confidence by lending to non-banks for the first time since the 1930's via the PDLF. The program accepts wide range of collateral, including AAA/Aaa rated mortgage-backed securities that have been marked to an actual market price while the interest rate, 2.5%, places the real rate about 25 basis points above zero. There is a lot more info on the NY Fed's website : http://www.ny.frb.org/newsevents/new.../rp080316.html

Stephan Jen of Morgan Stanley recently wrote an interesting article regarding what's required for successful monetary intervention. His conclusion was that the monetary policy of the country in question does not "need to be in sync with the intervention objective" but that "the relative monetary policies between countries needed to be." What this means is that the dollar can potentially strengthen while the Fed is still easing if the corresponding central bank is pursuing the same policy. I would extrapolate this out to how market forces can move price as well, since that does seem to be the pattern.

While one can't argue at this time that the ECB is on an immediate course to cut rates, because expectations that growth in the Euro Zone will slow and subprime loan losses will spread at European investment banks, investors may start to price in a change in ECB policy. meaning that the ECB may start to ease as the Fed slows. The BoE seems set to continue easing, as the surge in credit costs has choked off lending to consumers especially for new home loans. Australian consumer confidence plunged to the lowest level in almost 15 years in March and business sentiment in February held close to the weakest since September 2001, signaling a halt to tightening by the RBA. The average net wealth of New Zealand consumers fell for the first time in seven years as house prices declined and rising interest rates increased debt, adding to signs that household spending may slow and curb economic growth.

From a technical perspective, it does look like the dollar is vulnerable to giving back some of it's gains against the high yielders in the very short term, as it looks a bit overbought on the daily charts. There is a potential DS Overbought forming on EUR/USD if price rises a bit and closes oversold at a price less then the March 15-16 close. GBP/USD formed a weekly DS Overbought formation on March 2 at 2.0165, but has now made a DS Oversold on the daily chart. AUD/USD formed a daily DS Overbought on the close of March 13 from .9454.

The case for Dollar strength at this time also has to do with the fact the the world's reserve currency has depreciated in a disorderly way, not in terms of relative currency price perhaps but in terms of commodities. Oil has risen almost 80% the past year and while "disorderly" is subjective, it seems reasonable to suggest that an 80% increase is disorderly. More to the point, investor confidence, especially of foreign investment, has probably been shaken with the Dollar's decline. A couple of SWF's have gotten burned since their recent investments and I would suggest that while these super deep-pocket investors can handle market fluctuations, they will be less inclined to invest further if the U.S. continues to pursue a weak dollar policy.

No buy, hold or sell recommendations are being made.
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Chart of the Day - 3/21/2008 - AUD/JPY 3/21/2008 – AUD/JPY – A key carry-traded currency pair, AUD/JPY (the long-term weekly chart of which is shown) has just reached a critical support level. As the accompanying long-term chart displays, price action has been entrenched within a relatively well-established uptrend channel since at least mid-2004. With the exception of two accelerated bullish runs above the top line of the channel, price has consistently been confined within the borders of this parallel channel, as outlined on the chart by the two green uptrend lines. Within the past week, the pair once again reached support and turned back up at the bottom of the channel, attesting to the strength of this support. Therefore, any true breakdown of the bottom line of this channel would represent a considerable breakout shorting opportunity. In this event, the next major support to the downside would reside around the 86.00 region. At the same time, however, since the current uptrend support line carries considerable long-term strength and significance, the technicals are biased towards a near-term turn back up to resume the long-standing uptrend. In this event, the next major resistance to the upside resides at the key 38.2% Fibonacci retracement level around 93.00 (the high-to-low retracement span being measured from the most recent touch of the top of the channel on 2/28/2008 to the most recent touch of the bottom of the channel this week).

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. Uptrend lines in green; horizontal support/resistance line in yellow; Fibonacci retracement levels in grey.)

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From my point of view there are a number of opportunities that are beginning to appear but with so much volatility, I am holding back a little. The real issue I am worried about is the Easter break. Several Western markets will be closed on Good Friday and a lot of traders are out for the Monday after Easter weekend. Considering the volatility this week, that may make for some very weird price action in the next day or two as traders prepare to be out that will make it tough to take longer positions.

However, in preparation of some trading opportunities I am looking for a potential break to the downside on the AUD/USD below the 23.6% retracement level that could take prices all the way to the lows of December and January. I will show a similar setup potentially appearing on the GBP/USD. finally, we are getting some contrary movement between longer term bond yields and the USD/CHF. That may be creating a nice environment for additional downside moves on the USD/CHF. I would wait for a bounce down from resistance at 1.0200 before getting to serious about that one but it could be another short term opportunity.

click here to see today's video: http://www.pfxglobal.com/pairs-archi...olatility.html
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March 10, 2008

Traders welcome back! This trading week market already started with new highs on cable. These current highs ruined my plan that I prepared for you, so nothing on this one for today. I will wait for another and larger retricement. Ok, USD/JPY is also interesting, like always.

USD/JPY

After Fridays payrolls and new lows on USD/JPY price quickly retrace and found resistance at 103,24. This high I labeled as wave (a). Right now is price in small down channel in wave (b) with double zigzag, I am expecting break in to the uptrend. What I am doing here is that I would like that market show me if I am on the right way. I am talking about confirmation of the trend. If my plan will come true, then I will sell somewhere around 103,50 – 103,70.

If you have any thoughts to trade on this way up, then I suggest you to go long after the breaking upper trend line of the channel, with stops bellow 101,70. Trade well, Grega.

30min chart


For all analyses please visit website http://www.trading-fx.si/fx/sloanaliza.htm

Analyses are made by

Gregor Horvat
chief executive officer
forex analyst
Capital Forex Group LLC

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by John Jagerson

A look at the week ahead...

Traders are still going to get plenty of inflation data this week but other than that things look pretty light. With the risk environment in the state that it is in, unexpected news, particularly from banks, will be much more important.

Much of the most important news is loaded towards the end of the week with interest rates for the CHF, consumer inflation and sentiment for the USD and trade data for the USD and CAD. This means we should keep our analysis open for now. A continuation of Friday's strengthening USD could be reversed at support levels if the news is bad for North America.

To listen to the podcast, click here: http://www.pfxglobal.com/content/blogcategory/75/186/
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The following is a Bloomberg article By Stanley White and Ye Xie
For the full article see: http://bloomberg.com/apps/news?pid=2...NYI&refer=home

March 10 (Bloomberg) -- For the first time in more than a decade, foreign exchange traders are confident that the Bank of Japan won't intervene in the currency market, paving the way for the yen to extend its biggest rally since 2000.

Japanese authorities sold the currency on all four occasions since 1995 when the yen approached the 100 mark in a bid to support exporters from Toyota Motor Corp. to Sony Corp. When the yen strengthened to a eight-year high of 101.43 last week, Finance Minister Fukushiro Nukaga stopped short of signaling that officials are concerned, only saying the government needs to watch currency moves ``carefully.''

An attempt to influence exchange rates would bring Japan into conflict with the U.S., which relies on a weak dollar to underpin an economy on the verge of a recession. Citigroup Inc. and Royal Bank of Scotland Group Plc, the third- and fourth- biggest traders, say Nukaga will let the yen break 100 because it's 40 percent weaker than its peak in 1995 on a trade-weighted basis.

``When I intervened, the U.S. agreed to it,'' said Eisuke Sakakibara, dubbed ``Mr. Yen'' for his ability to influence the foreign exchange market as Japan's top currency official from 1997 to 1999. ``The U.S. now welcomes a gradual decline in the dollar and Treasury takes the position of Detroit. This is affecting how Japan is responding now.''

Japan increasingly relies on Asia for growth, making the country less sensitive to a U.S. slowdown. Shipments to the U.S. accounted for about 20 percent of exports last year, down from about 30 percent in 2000. Asia consumes half of Japan's exports.

Tables Turned

Japan's economy, the world's second largest, may expand 1.5 percent this year, matching the growth rate in the U.S., the International Monetary Fund said on Jan. 29. It would be the first time Japan won't lag behind the U.S. since 1991.

``Compared to the U.S., growth in Japan is relatively robust,'' Sakakibara said. ``The tables have turned.''

U.S. officials probably won't support dollar purchases unless the yen breaks 90 and heads toward 80, said Sakakibara. Central banks intervene in the foreign exchange market when they buy or sell currencies to influence exchange rates.

The yen gained 0.4 percent to 102.24 at 12:51 a.m in Tokyo. Naoyuki Shinohara, currently Japan's top currency official, told reporters today he's ``carefully'' watching the market, reiterating Nukaga's comments.

The yen has gained 19 percent since June, the second biggest advance among the 16 major currencies behind the Swiss franc. Rather than a referendum on the economy, the rally was fueled by losses in the credit markets, which led investors to sell high-yielding assets around the world financed with cheap loans in Japan. They would need to buy yen to pay back the loans.
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