Weekly review for 14 - 18.03, 2011

                The whole previous week trading was mainly influenced by the outcome of the devastating earthquake in Japan, major problems with the Fukusima NPP and the growing tension in the Northern African region and the Middle East. As a result, during most of the week the demand for the save-heaven assets was increasing.

               In the beginning of the week the Euro-zone leaders carried out the additional $600B in quantitative easing program. This announcement was unexpected by the market participants. The European credit rate for Greece was reduced, but the credit rate for Ireland was increased. As a result, the euro started the previous trading week with growth. The EUR/USD pair traded at the maximum level of $1,3960.

           On Monday the Bank of Japan left the principal rate unchanged at the previous level of 0.10%. As a save-heaven asset, the yen rate grew and the USD/JPY pair showed minimums at Y80,50. The Bank of Japan injected Y15 trillion into Japanese capital markets and expanded its asset purchase program to Y40 trillion. This decision managed to limit the yen growth. As a result, the USD/JPY pair showed maximums at Y82.47.

              Speculations regarding the possibility that Japanese demand for oil after the devastating earthquake on Friday would decrease, pressured the oil rate. The oil prices dropped below the $100 mark per barrel. At the same time the gold rate increased and reached the $1,426.70 level per ounce.

              On Tuesday the euro received additional pressure after the publication of the Euro-zone fundamentals. The German ZEW survey (Economic sentiment) for March decreased and turned out to be below forecasts: 14.1 against the expected 16.0. The current situation index was below the forecast as well: 85.4 against 86.0. As a result, the EUR/USD pair dropped to the minimums of $1.3852. At the same time the US dollar was supported as a result of the forecasts of the FRS statement, which was expected to announce the improvement of the US labor market. Greenback was also supported as a save-heaven currency after the announcement of the possible radiation contamination risk as a result of the earthquake in Japan. Explosions at the nuclear power plant in Japan, as a result of the devastating earthquake, supported the yen as a save-heaven currency. Bank of Japan continued to support national finances of the country. Additional 5 trillion yen were injected into the financial system.

              Swiss Frank received considerable support as a save-heaven currency and reached historical maximum against the greenback at the level of 0,9137 on Tuesday.

             Trading dynamics changed during the American session after the release of the FOMC meeting results. The interest rate was left at the previous level of 0.25% and will be kept at this level unchanged for a “considerable period of time”. The QE2 program was left at the volume of $600B. As a result, the US dollar has lost its attractiveness and the EUR/USD pair grew to the $1.4012 level.

                 On Wednesday the euro showed decrease after the release of the Moody’s credit rating for Portugal, which was reduced from A1 to A3 with the negative forecast. Concerns over the European budget crises reinforced again. The EUR/USD pair dropped to the minimums of $1.3925. On the same day the USD/JPY pair set a 16-year minimum today at the level of Y76,73 due to the growing concerns regarding the risks of radiation leaks in Japan.

              On Thursday the EUR/USD pair showed minimums at the level of $1.3870 during the Asian trading session. Maximums were reached at the level of $1.4054 due to the announcement that Spain sold bonds for 3219 billion euro of the year 2021 and for 911 billion euro of the year 2041. At the same time the GBP/USD pair demonstrated maximum at the $1.6120 mark. European session brought sterling to maximums of $1.6170. The speculations over the possibility that Britain could start an air attack on Libya supported the growth of the pound. Market participants were monitoring the development of the situation at the Fukusima NPP. After the released confirmation that the situation showed some stabilization, the yen dropped from the reached maximums.

                    According to the released information on Thursday, the Initial jobless claims volume decreased below expectations. Industrial production showed unexpected decrease for 0.1% against the forecasted growth of 0.6%. The Philadelphia Federal index turned out to be above expectations and above the previous month’s level. Nevertheless, the release of the US data did not have any impact on the market dynamics, since investors were mostly influenced by the situation in Japan.

                After the conference of the Ministers of Finances and heads of the National banks of the G7 countries, it has been decided to perform a mutual intervention aimed to decrease the rate of the yen. As a result , the USD/JPY reached the Y81,47 level. The EUR/USD increased and closed the trading week at the $1.4183 mark.

MNI Survey: Japan Feb Trade Surplus Seen +38% Y/Y at Y890 Bln

         TOKYO (MNI) – Japan’s trade surplus in February is expected to have
totaled about Y890.4 billion, up 37.6%% from a year earlier, following a
deficit in January, according to the median forecast of analysts
surveyed by Market News International.

        The Ministry of Finance will release the data at 0850 JST on
Thursday, March 24 (2350 GMT Wednesday).

The trade balance in January posted a deficit of a revised Y475
billion, the first deficit in 22 months. It followed a surplus of
Y725.85 billion in December, which was up 33.8% from a year before.

The deficit was caused by a surge in imported energy prices and a
temporary slowdown in exports to China and other Asian economies.

Economists said the export slowdown in January was temporary, which
was caused by the Lunar New Year holidays in the region, adding that
both exports and imports are expected to have returned to normal in
February.

They forecast exports will show a 8.5% rise y/y, improving sharply
from +1.4% in January while imports will post a 4.3% gain, slowing from
revised +12.5%.

According to data released previously by the MOF, exports rose 8.6%
y/y in the first 20 days of February while imports fell 2.2% in the
same period.

The MOF said iron and steel, automobiles and metal processing
machinery boosted exports in the first 20 days of February, while slower
purchases of clothing, computers as well as scientific and optical
instruments lowered imports.

During the same period, prices of imported crude oil averaged $95.6
a barrel, up around 21% from the whole month of February 2010, posting
the highest level since $102.7 marked in October 2008.

EUR/USD Intra-day signal by AceTrader

INTRA-DAY EUR/USD OUTLOOK


Last Update At 22 Mar 2011 06:25 GMT
Rate : 1.4230

Although euro has edged higher ahead of European
opening after meeting renewed buying earlier at
1.4203 (AUS), abv y'day's 4-1/2 mth high at 1.4241
needed to extend marginal gain, near term 'loss of
momentum' shud cap price below prev. top at 1.4283.

Buy on dips for 1.4240 or sell if euro climbs to
1.4260 1st for subsequent retracement to 1.4220.

Range Forecast
1.4210 / 1.4240

Resistance/Support
R: 1.4241/1.4260/1.4283
S: 1.4185/1.4138/1.4095

A Common Political Culture? No, Nee, Neen, Na, Naa, Ei, Ochi, Não.

                 Linguists within our midst will recognize the word “no” in several languages. I of course headed straight to the internet for clarification. Thus, we have no written in English, Spanish, Finish, Portuguese, Dutch, and German—not necessarily in that order. What sparked this little lesson in “no” today was a casual reading of the Financial Times; it appears the lack of a common political culture may be about to finally catch-up to that little experiment in centralizing control of people’s lives that is often referred to as the single currency. The serfs seem to be rising up against the all powerful politicos. How sweet it is!

                    We have been telling our clients for some time the fate of the euro rests as much or more now on politics, as it does on economics. But because of the monolithic singularity with which the political elites approach the future of the single currency experiment (SCE for short), the core political will and opposition to this multi-headed beast based in Brussels by the average sovereign citizen residing in Europe. The elites would have us believe there is no such thing as a sovereign citizen; we are all one big happy collective European family; or at least that be their dream. But there are such individuals out there—real rugged independent individualists alive and well in Europe; we know because we receive emails from them when they decide to leave bunkers now and then; seems now many are emerging from their bunkers at the same time and rising to the surface to be heard.

                Ms Merkel is hearing their voices. According to the Financial Times, a recent poll in January showed that 68 percent of Germans lacked trust in the euro. Already, some within her own party have taken action to tie her hands on any proposed bailout. Her sovereign citizens seem to be making it quite clear for a political animal like Angela to hear: Feel free to continue to lead the eurozone, but that’s your goal, you won’t be leading Germany much longer.

                   It is not just Germany, a block seems to be forming among the three rich northern states of Europe—Germany, Netherlands, and Finland. The taxpayers in these countries have had enough and are making that clear. We often think about Germany’s views, but interestingly the Financial Times reported it this way today in a great piece written by Peter Spiegel and Quentin Peel [our emphasis]:

As nervous as Ms Merkel may be, her standing is relatively safe compared with that of her Dutch and Finnish counterparts, whom officials say have occasionally become even more strident than Germany in closed-door negotiations as their political fortunes have waned.

“The Finns and the Dutch have become terrible bedfellows,” says one person involved in the negotiations.

So, the guys that are funding this little experiment are becoming weary.

                 The Greeks—those left and unable to sail off scot free into the sunset—are in high dudgeon. To use the vernacular—they are really pissed off! Already they are sick of austerity, which looks to be the state of things as far as the eye can see. But they aren’t taking it sitting down, as you well know if you watch the news. Many Greek citizens are refusing to pay the exorbitant increase in fees levied upon them, effectively by the European Union and the IMF.

                 Soaring fees hit the Greek sovereign citizen just as average income there has plunged by around 20% and inflation has doubled since the recession started, as reported by the Financial Times. The big push not to pay highway tolls is now weaving its way into boycotting rising electricity bills. “Damn you Greeks’ tighten your belts and stop whining,” is the effective response from the Eurozone and IMF. Likely a prescription we all need to heed to a greater or lesser degree no matter where we live. But, that dog won’t hunt in Greece as evidenced by daily violent and powerful protest that show the country is very close to becoming ungovernable. Can you say anarchy? Commitments to contractual obligations and creepy anarchy don’t usually make for good bedfellows.

                  Ireland…Holy smoke! Is there any better example in history of how badly and rapidly a government (added by financial alchemy) can screw the pooch? Well maybe, if we think of the Darien scheme initiated in the 1690s next door in Scotland; a place where part of my ancestry flowed from. The scheme so weakened the country it allowed the stinking Redcoats (apologies given) to effectively pave it over, crushed the peeps, so taxes could be extracted on the world’s truly precious commodity—scotch.

                  Given the other part to my gene pool came from Ireland, I have some inkling about how they might feel. My Irish side is what leaks out into these pages each day—fight first and ask questions later. It has gotten me into much trouble over the years, as you can imagine, but as they say: “You can run from my gene pool but you cannot hide.” The average Irish citizen has to be spitting mad and likely searching continuously to find a banker that he can punch in the mouth. I know I would. This isn’t normally the breed that likes to be told what to do by the EU given the scorched earth policy left for them to deal with. Those left are likely regretting that “no” vote that Brussels so insidiously turned into a “yes.” Common culture? Yeah—sure!

[Note: Black Swan Capital will soon be conducting its distillery tour in Scotland and penning our daily tasting notes, sending a bottle of scotch each day to a lucky reader, and thinking about such minor things as economics along the way; if we can clear our heads of the wee drams we might imbibe. If there are any readers in the area, we would be more than happy to organize a small conference to meet you and discuss some of global macro views going forward; let us know. It would be great to meet you.]

                 Added to this nasty elixir of austerity pain, we wake to the downgrade of Spanish debt this morning. Just yesterday it seemed analysts far and wide were high on Spain as they were taking to ingesting the tough austerity medicine. Maybe so, but does it matter?

                This Spain downgrade comes on the heels of Portugal’s effective announcement yesterday it will need a bailout in order to keep the game of musical chairs in play.

Forex Brokers That Have Gone Public Fail to Impress

                   Two of the most prominent forex brokers took advantage of the currency market's growing popularity and tried their charm on investors by debuting at the New York Stock Exchange. But three months after going public, it seems like these hotshot broker's stocks have still been unable to impress!

                  You may know them from the article I wrote late last year.But enough with the suspense, I'm talking about none other than FXCM and Gain!

                  The New York-based broker FXCM, a.k.a. Forex Capital Markets, is regarded by some market junkies as the biggest retail FX broker in the biz. It went public in December of 2010, raising around 211 million USD in its initial public offering when it sold 15,060,000 shares at 14.00 USD each. However, when I looked up FXCM during the middle of the week, I saw that its price has slumped to 12.12 USD per share!

                 As for Gain, well it also hasn't err... gained. It went public about the same time that FXCM did, raising about 81 million USD for the 9,000,000 shares it offered. The company wasn't off to a good start though as GCAP opened at 9.00 USD per share, below what the market had initially expected. As of this writing, GCAP is at 7.72 USD per share, a fall of more than 12% from its IPO price.

        Part of the reason why Gain and FXCM have struggled lately is because of bad publicity.

        Both firms have been subject to lawsuits and complaints from both the general public and regulatory agencies like the NFA. FXCM is being investigated on whether or not they issued misleading statements to shareholders. Meanwhile, Gain is facing a complaint accusing that the firm included a plug-in its trading platform that provided unfavorable execution to its clients.

          This is one of the challenges for private firms that go public. Because they are now publicly owned, they are put under heavy scrutiny not only by government agencies, but by shareholders and the general investing public as well.

               Furthermore, new regulations have also hampered the forex brokering business. Brokers are now required to have higher capital reserves in case of substantial trading losses or investors pulling out their money. Lower leverage limits have also been put in place. This reduces their clients trading volume, which in turn reduces a broker's revenue.

                Violations of such rules can lead to fines from the NFA that hurts the bottom line net profit. This can be perceived as poor performance, which translates to lower share prices.

                  The news may seem bad for the retail forex industry, but being the optimist that I am, I see these as positive. The thing is, the forex market is riddled with shady brokers that it's so difficult to tell the legit ones from the scammers!

                   Stricter regulations, even if they hamper growth, are NECESSARY to protect customers. You may not like or agree with them, but regulations encourage transparency, which force brokers to avoid questionable practices and operate as fairly as possible.

                    Besides, if you look at my State of the Forex Industry Address, you'd actually see that the forex market has actually grown a massive 20% since 2007, despite the financial crisis. Numbers and facts don't lie my friends, numbers and facts don't lie!

Forex education is crucial for beginners

             This is why we've come up with the New School of Pipsology. More lessons, more content, and more corny jokes to satisfy your hunger for forex education.

          The New School of Pipsology is designed to help you acquire the skills, knowledge, and special abilities to become a successful trader in the foreign exchange market.

Our definition of a successful trader is having the ability to do three things:
Make pips
Keep pips
Repeat


If you can repeatedly do these three things, then you're on your way to being a superstar forex trader! But we warn you, it's no cakewalk.

Remember when you were but a little teeny weeny bopper attending grade school?

No?

Well, according to our memories, here's how it worked.

                 You start schooling by rolling into pre-school with your chocolate milk and snack pack. The next year, you bring your kiddie backpack to kindergarten. If you pass, you'll join the big boys and girls in elementary school. But don't worry, we still have nap time in Grade 1. If you pass Grade 1, the next year you'll enter Grade 2, and so on, all the way up to Grade 12.

It basically went like this:
Kiddie School: Pre-school and Kindergarten
Elementary School: Grade 1 to Grade 5
Middle School: Grade 6 to Grade 8
Summer School
High School: Grade 9 to 12

This is how our lessons are broken apart, so you can relive the past and also be able to learn and study forex trading techniques at your own pace.

You might have noticed that there's summer school right before high school.

Wait. What's that?


Summer school?

Yep. Summer school.

We think that high school is one of the most important times of your life. It's when you get potty trained and stop using diapers, learn to read and write, and get your very first hugs and kisses from your mom and dad.

Oh wait...that was Forex Gump. Our mistake.

                    But for you more normal folks, to make sure you are fully prepared for high school and the awkward challenges you will face, we've added summer school classes to at least help ease your academic transition.

                  As for trying to get a date for the prom, we can't help you there. Even Dr. Pipslow is still looking for one. And he's 600 years old. Too bad he's forgotten that his prom already happened 583 years ago but we feel bad breaking the news to him.

So....shhhhhhhh. It'll be our little secret.

Aside from dating drama, try not to get senioritis in Grade 12.

Why?

Because our high school goes up to Grade 14!

But there's more!

Just like in real life, learning doesn't end in the high school!

If you've done well throughout grade school and high school, you get a full scholarship to our college! All expenses paid!

We won't even require you to fill out any applications or write essays. That's right....we like to hand out scholarships just as much as we like to hand out cute bunnies to Cyclopip for him to eat.

Hey now, don't judge Cyclopip. He's already given up eating soft cuddly cute kittens. He's trying okay?

Let's get back on track...

Our curriculum here at the New School of Pipsology will make a bold attempt to cover all aspects of forex trading.

Yes we are crazy, but that's how we roll yo.

That's also how much we believe in having a solid forex education.

You will learn how to identify trading opportunities, how to time the market (aka smart guessing), and when to take profits or close a trade.

But that's still not all folks. There's more!

You will also learn how to predict the future and never have a losing trade.

Yeah right. In your dreams pal.

Forex trading isn't easy, but with a lot of studying and hard work, you can become a successful trader.

So grab your security blanket and favorite teddy bear and let's head over to Pre-School!

AUD/USD: Symmetrical Triangle Spotted! - Closed Early

AUD/USD broke up from its symmetrical triangle! What's more, it only went a few pips above my stop loss before it went back down! Is a tight stop loss my only problem, or am I doing something else wrong? Help!
A few days ago I shorted this pair because of the symmetrical triangle on the 4-hour chart, as well as the grim reports from both New Zealand and Australia. Too bad that markets weren't dancing to the same beat!

Market sentiment began to turn around just as I entered the trade, with mixed reports in the U.S. sparking crazy waves of anti-dollar vibes. While U.S jobless claims improved to 391,000 last week,GDP in the U.S. also dropped to 2.8% in the fourth quarter. The dollar bears were practically raising their glasses! Oh wait, that was Pink's song...

Are inflation expectations ahead of themselves?

I read a great piece by HSBC Chief Economist guru Stephen King that appeared in the Financial Times this morning, "Trigger-happy central bankers risk wrecking the recovery," *Note: We often consider things great when they are aligned with one's own world view; which is the case here; as I too think developed world central banks have gotten ahead of themselves.]
Here are some excerpts that I think make great sense:
 Standard economic upswings end with inflation. This one is beginning with inflation.

• Central banks typically raise interest rates to prevent inflation from picking up. They’re now thinking of raising interest rates to bring inflation down.
• Higher interest rates are associated with rapid economic growth. Yet the west’s economic recovery so far has been arthritic, at best.
• There are few, if any, domestic inflationary drivers.
• Wage growth is modest.
• Money supply growth is insipid.
• On any conventional measure, there’s plenty of spare capacity.
  
• The emerging nations’ success has, in turn, imposed a tax on western economies.
• This “tax” is being paid via an increase in prices relative to wages. Hawkish central bankers would rather the tax be paid via higher interest rates.
• Yet, raising rates may simply squeeze western demand without chocking off “eastern” inflation.

Cowabunga System Daily Update

Current Trend

The trend was up until 3am EST. From 11pm - 3am EST, a new trend change candle formed and changed the trend from up to DOWN. After 3am EST, the trend remained down the rest of the day.
Today I only looked for long trades until 3am EST. After 3am EST, I only looked for short trades.

Today's Surf

5:45am EST- There was a valid signal here but because it was right before a news event I did not enter.
10:00am EST- There was a valid signal here but because it was a news candle I did not enter.

Today's USD/CAD

Today's USD/CAD: How to better determine your entry with news coming up...

Fundamentally there two broad points of consideration. The first requires only a glance at the economic calendar to see that the Bank of Canada (BOC) Rate Statement and Overnight Rate release is at 9:00am EST. The Overnight Rate is expected to remain at 1.00% so that places heavy emphasis on the Statement. The second point is more nuanced and this is where the discounting and expectations come in. This is far more difficult to ascertain because there is no "measurement" other than to observe price leading into the event. Will it be hawkish or dovish? How much of an impact does the recent rally in crude oil have on the loonie? Does the BOC see a quicker recovery with the global demand for crude and commodities in general? Is the current geopolitical landscape only a near-term boost to commodities? This is an important consideration since crude oil and metals account for nearly half of Canada's exports!

               Based upon price action, even if rates are left unchanged and there is no suggestion of any hikes coming soon, the Directional Bias of the USD/CAD is down and I believe this must be considered when taking positions after the event. The downtrend on the daily chart would remove the 60 and 240-minute from any buy entries. In other words, getting long in this environment would be counter-trend and I will consider that only on five, 15, and 30-minute time frames. The 60 and 240-minute though are exactly where my attention is focused this morning. Both are in downtrends and therefore the BOC bounce that is currently pushing prices higher could set up a swing short at the 0.9747/0.9750 major psychological level or the 34 period EMA low on the 240-minute chart.
             Realize that the data offers the volatility - in this case bullish momentum within an overall downtrend - that I seek for the swing shorts entries. The strategy is pure trend following. My requirement before the trend follow is a correction higher. The correction higher is not a reversal of the overall (daily) trend and a move to 0.9750 is basically a 23.6% Retracement of the decline from February 23 high to the today's 0.9684 low.

Will the EUR/USD Double

Will the EUR/USD Double Top Reverse the Longer-Term Intraday Trend?

           The EUR/USD has traveled to the upper limits of the current range as the euro continues to benefit from hawkish expectations of a future rate hike. The strong data out of Europe has propelled the euro past the sinking dollar and pushed prices to 1.3854 and a second consecutive session of a rally to the 1.3850 major psychological level. There is a double top on the daily chart at the recent highs at 1.3861 and 1.3856.
There is also a double top that can be seen on the intraday time frames. The 240-minute chart however is the most interesting at the moment since the trend is still up on this time frame as opposed to the downtrends on the 15 and 30-minute charts and the sideways congestion of the 60-minute.

 The 240-minute chart has formed a Rising Wedge which is no surprise since the trend as of the February 14 bounce from 1.3426 has been up. The break of the uptrend line support of the pattern indicates a near-term weakness which could be partially the daily chart double top creating selling pressure on the pair as prices could not attract buyers above 1.3800.  The question is now whether the 240-minute move lower is merely a correction or a reversal. The pattern breakdown could be seen as an aggressive reversal entry however the area between 20 period simple moving average and 34 period exponential moving average could offer a cushion of buying support. This area overlaps with the Forecast area (shaded gray) on the chart which is between 1.3719 and 1.3650.