Dollar Makes a Critical Bearish Break but Risk Appetite Provides Little Follow Through

• Sentiment-based Momentum Giving Way to Judicious Fundamentals
• Monetary Policy Efforts Reveals a Building Divergence in Growth and Inflation Forecasts
The sharp rally that opened this week seemed to confirm that the next wave of a five-month bull trend was underway. However, this optimistic outlook was immediately deflated when momentum failed support the transition. What is the source of this hesitation? Fundamentals. Risk appetite and broad economic growth are two separate conditions. Generally, the former follows the latter; but when speculation is involved, inconsistencies often arise. Tracking sentiment since the beginning of the year, we have seen a clear evolution from a market that was attempting to establish stability after a financial crisis to one that was expanding as idle capital returned and yield forecasts rose. At this point, the reversal is unmistakable; but then again, this does not mean it is permanent. The more traditional asset classes have cleared their highs for the year; but the drive behind this rally has certainly eased. Equities, represented by the Dow Jones Industrial Average, have stalled over the past three days. In a similar fashion, the speculative-receptive commodities market has pulled back from its own highs without a clear level of resistance overhead. Alone, these asset classes would suggest risk appetite is health, just taking a breather. However, in the currency market, the conflict is more obvious. Looking beyond the 10-month high for the carry index itself, we have seen the US-dollar based majors stall immediately after mark-wide break against the greenback. And, ensuring that this is not just the dollar break from sentiment, the yen crosses have themselves yielded ceded to resistance.

Looking at the market’s as a whole, we are left to believe that a recovery is well under way. However, the developing trend behind investments is as assured as the revival of growth – that is to say, it is still highly uncertain. It is important to separate the influences of sentiment from the true foundation of economic expansion. Clearly, data over the past half year has supported the notion that the worst of the global recession is likely past and perhaps that positive growth is on the horizon. Coming from a record-breaking recession and ongoing financial crisis, this turn would naturally bolster confidence. A sense of stability is certainly enough to draw sidelined capital back into market-based assets (and thereby inflate their values); but to promote a true bull wave, turnover has to be catalyzed by the promise of rising returns and tangible growth has to produce wealth. The global economy has not yet graduated to this phase. Growth readings to this point have merely reported a moderation in the pace of the ongoing recession. Officials from many of the world’s largest economies see expansion at or after the turn of the year. Yet, even if this milestone is reached, growth from that point is forecasted to stagnate. To this point, government spending and stimulus has been the primary engine for improvement. Policy makers may be able to keep this scaffolding in place long enough for lending to fully thaw and business investment to revive; but the consumer is the key in this equation. Now the question becomes whether those countries with positive growth (China, Australia) will fold under the pressure.
isk Appetite Provides Little Follow Through

FOREXTOTALNEWS: Dollar falls against major currencies

Starting with Wednesday evening GMT, the global risk appetites returned, making many of the market traders’ start selling off dollars, therefore weakening it against many other major currencies, besides the yen.

The information reveled by the Federal Reserve regarding its policy statement didn’t help the dollar gain much and only saved it from falling lower.

Later on Wednesday, the euro reached its two week highs against the dollar, going up to the level of $1.3300, and 129.10 against the yen. The dollar also gained stronger positions against the yen, reaching Y97.42.

FOREXTOTALNEWS: Though flu concerns remain, Euro is up against Dollar, Yen

On Wednesday Asian market Euro is raising both against the dollar and the yen, as officials made hints that low interest rates may soon end in the European zone.

And though the euro is usually sold out, when finance markets are under stress, this time it stood in recent ranges because of the still remaining flu concerns. The recent reports show more cases of suspected swine flu in both New Zealand and South Korea.

Benefits of a Structured Settlement

One significant advantage of a structured settlement is tax avoidance. With appropriate set-up, a structured settlement may significantly reduce the plaintiff's tax obligations as a result of the settlement, and may in some cases be tax-free.

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What Is a Structured Settlement?

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Forex Blog: Chart Analysis GBPJPY

The Pound has been a weak performer over the last couple of days as we forex traders discussed. This is a result of the BOE's surprise last week coupled with general risk aversion in the markets. However this rationale is outweighing the steady flow of better than expected numbers - the latest being the RICS House Price Balance showing a -8% reading. Are we to expect that there is sustainable UK housing appreciation? Hardly. If the US Federal Open Market Committee helps to set off a further round of treasury buying as they have in the past few auctions, then the JPY will continue to be the star performer here in the near term and we can expect downside momentum in GBP/JPY, which recently saw its attempt above the previous 162.50 area high firmly rejected.

Dollar falls before US jobs data

he dollar fell against the euro and yen on Friday as investors awaited a key US employment report amid tentative signs of a recovery in the world's largest economy.

In late morning trading here, the European single currency rose to 1.4361 dollars from 1.4347 dollars in New York late on Thursday.

Against the Japanese currency, the dollar dropped to 95.41 yen from 95.44 yen late Thursday.

All eyes were on Friday's non-farm payrolls data in the United States amid mounting hopes that the pace of job losses there was slowing.

"Optimism is growing that the (US) economy has hit bottom and that it has exited the worst of the downturn. The market is out of its phase of utter hopelessness," said Hachijuni Bank foreign exchange strategist Masatsugu Miyata.

But he noted that the picture was not entirely rosy, with consumer spending and retail sales still sluggish.

The euro edged up following a fall on Thursday after the European Central Bank left its key interest rate unchanged at a record low 1.0 percent.

Dealers noted that ECB president Jean-Claude Trichet voiced confidence about the prospects for an economic recovery but also warned that the outlook remained uncertain.

Good or bad for the Forex? I have no Idea

Continuing my thoughts from yesterday, on Wednesday the US reported a third straight month of Factory Order increase, a sign that things are picking up in the manufacturing sector.

The report was met with mixed results as the Dollar fell and stocks ended slightly off, an unusual occurrence as normally when stocks are down the Dollar is up as Forex Traders usually seek a safe haven respite.

I was watching Fox Business Network and they had an economist on who was analyzing the data and came up with similar conclusions to what I had said yesterday, simply, the reports that are coming out are not reflective of “the whole picture”. So this is the story behind the factory orders data:

About three weeks ago, the US announced a program called “cash for clunkers” which gives people $4,500 for their junk cars towards the purchase of a new car with more than a minimum of 17 Miles Per Gallon.

This program is supposed to encourage “green” purchases to help lower overall carbon monoxide gases, as well as a boost to the ailing auto industry enabling them to see out their old 2008 models to allow for increased production of 2009 models.

The program was launched in “test” areas about two months ago, and was met with wild success and went national two weeks ago. It has been so popular in the two weeks since, that Congress is approving another 2 Billion Dollars towards extending it.

So the result of this is you have people who cannot afford a new car, people who never would have thought of buying a new car, now buying new cars to the rate of about 450,000 new cars in the past two weeks.

And they are doing it for the most part, with their own present and future tax dollars. To me this is not stimulus but rather stupid.

The US government will be in a 13 Trillion Dollar hole next year – 1 Trillion less than the 2007 GDP of the country. They owe China 3 Trillion, Russia 1 Trillion and are poised to pass legislation on healthcare that will send them even further in the red.

Rising oil prices have them Dancing Down Under

The Dollar has fallen to a year low against almost every major currency, given the problems that the US is facing, it is understandable - but the stock market gains are what is puzzling to me.

Forex Investors and traders are pumping up the markets because historically, when people have a sense of security they tend to abandon the the USD and the Yen and test their luck with stocks.
The US Economy is still in freefall. The fact that Tim Geithner, the US Treasury Secretary, has now began telling news outlets that the biggest challenges lay ahead with the enormous deficit is a big warning sign of that.

Broker trading companies investing and trading in the markets have begun to recognize this as the Dollar has matched the economy. The market seems to have reversed from a psychological one to a fundamental one and this is good.

I still believe that the real money to be made lies with Australia and New Zealand. The risk is less because of the low value of their currency in comparison with the big four, Yen, Euro, Pound and US Dollar, and the yields can be higher.

The Aussie and Kiwi have been doing very well as of late, and the Australian honesty we saw last week has seemingly driven much confidence in the competence of the leadership there.

Oil is rising and with it other commodities that rely on the slippery black stuff to help extract it - the $71 per barrel that oil is now is very good for both down under dollars.
Keep an eye out this week for the unemployment numbers from the US and the British GDP figures. They will go a long way to showing us how to move in the coming days.

Currency Trading Summary 4th August 04 Aug, 2009

U.S. Dollar Trading (USD) the positive sentiment remained from Friday in Asia hurting the USD which was sold against nearly all everything except the Yen. Oil continued higher and the risk appetite hit new highs with the S& P breaking the key 1000 level. Helping sentiment was the July ISM Manufacturing ISM at 48.9 vs. 44.8 previously. Crude Oil Closed up $2.13 at $71.58. In US share markets, S&P ended +15 points (1.53%) at 1002, NASDAQ ended + points (0.84%) at 1978 and DOW JONES ended +17 points (0.2%) at 9171. Looking ahead, June Core PCE forecast at 0.2% vs. 0.1% previously.

The Euro (EUR) continued to charge onwards breaking past resistance at 1.4339 and rocketing to 1.44 before stabilizing and closing above the level. German Retail Sales surprised -1.4% in June but the stock market action kept the pair well supported. EUR/JPY traded to new year highs above 137 Yen. O verall the EUR/USD traded with a low of 1.4205 and a high of 1.4447 before closing at 1.4405. Looking ahead, June PPI forecast at 0.2% vs. -0.2% previously.

The Japanese Yen (JPY) weakened everywhere as the USD/JPY continued bouncing up the June trend line and broke back above 95. AUD/JPY broke above 80 Yen and is a good gauge of the risk appetite of the market currently. EUR/JPY and GBP/JPY also traded at year highs. O verall the USDJPY traded with a low of 94.57 and a high of 95.45 before closing the day around 95.20 in the New York session.

The Sterling (GBP) was buoyed by the 16 month high UK PMI reading of 50.8 above 50 and a significant improvement from 47.4 previously. EUR/GBP broke below 0.8500 on the good news and then Cable already above 1.68 seized on the US data to break 1.69 and close in on the 1.700 bull target. O verall the GBP/USD traded with a low of 1.6694 and a high of 1.6990 before closing the day at 1.6975 in the New York session.

The Australian Dollar (AUD) continued its relentless track upwards breaking above 0.8400 and 80 Yen. The Pair found resistance on RBA rumors and profit taking ahead of the RBA and Retail sales data today. The Market is decidedly bullish on the pair but the trade is getting very crowded. O verall the AUD/USD traded with a low of 0.8349 and a high of 0.8448 before closing the US session at 0.8420. Looking ahead, RBA meeting today expected to remain at 3.0% with an important statement accompanying. UPDATE June Retail Sales -1.4% m/m vs. 0.6% forecast m/m and 2.0% vs. 1.3% forecast Q2.
Gold (XAU) was not affected much by the USD moves with safe haven flows exiting the trade and inflation not viewed as an immediate issue. Overall trading with a low of USD$952 and high of USD$962 before ending the New York session at USD$956 an ounce.

Oil Climbs Above $70 as Manufacturing Spurs Hopes for Recovery

Crude oil traded above $70 a barrel for the first time in a month on signs that industrial activity is picking up, possibly triggering a recovery in fuel demand.

Oil gained as factory output in China rose to its highest in almost a year, while a U.S. manufacturing index due today may show conditions in July were the best in almost a year. Oil may gain more than other commodities on a rebound in demand, said Nouriel Roubini, the New York University economist who predicted the financial crisis.

“Over the short-term, it seems that the path of least resistance is higher,” said Edward Meir, an analyst with MF Global Ltd. in Connecticut. “Investors are apparently still enthralled by the recovery trade, murky as its final outcome seems to be at this stage.”

Crude oil for September delivery rose as much as $1.50, or 2.2 percent, to $70.95 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It traded at $70.60 a barrel at 9:13 a.m. in London. Crude reached $71.85 a barrel on July 1.

The Organization of Petroleum Exporting Countries increased oil output for a fourth month in July, with quota compliance slipping as some members took advantage of strong prices, a Bloomberg News survey showed.

Oil output averaged 28.39 million barrels a day last month, up 45,000 from June, according to the survey of oil companies, producers and analysts. The 11 OPEC members with quotas, all except Iraq, pumped 26.035 million barrels a day, 1.19 million more than their target.

U.S. Manufacturing

The Institute for Supply Management may report today its U.S. manufacturing index climbed to 46.5 in July, the highest level in almost year, according to a Bloomberg survey of economists. Readings below 50 signal contraction.

“The implication is that there’s going to be a pretty solid demand recovery later this year,” said Toby Hassall, a research analyst at Commodity Warrants Australia Pty in Sydney. “It’s definitely sentiment-driven at the moment rather than fundamentally driven.”

China’s official Purchasing Managers’ Index rose for a fifth month to a seasonally adjusted 53.3 in July from 53.2 in June, the Federation of Logistics and Purchasing said Aug. 1. A survey today by CLSA Asia-Pacific markets showed manufacturing rose to a one-year high as stimulus spending stoked domestic demand. China accounts for about 45 percent of Asia’s oil use.

Brent crude oil for September settlement gained as much as $1.18, or 1.7 percent, to $72.88 a barrel on London’s ICE Futures Europe exchange. It traded at $72.83 a barrel at 9:13 a.m. London time.

Hedge-fund managers and other large speculators increased their bets on oil prices to rise, according to weekly data from the U.S. Commodity Futures Trading Commission. Net long positions in New York oil futures, or the difference between orders to buy and sell oil, doubled to 4,576 contracts in the week to July 28.

USD/JPY Weekly Outlook

Despite edging higher to 95.87 last week, USD/JPY failed to sustain gain there and retreated sharply on Friday. Initial outlook is neutral this week with focus on 94.01 support. As long as this support holds, rise from 91.73 is still in favor to continue and above 95.87 will target falling channel resistance at 96.61. However, break of 94.01 support will suggest that choppy recovery from 91.73 has completed and will flip bias to the downside for retesting this low first.

In the bigger picture, the stronger then expected rebound from 91.73 suggests that a short term bottom is at least in place and mixed up the outlook of USD/JPY. The three wave structure of the fall from 101.43 to 91.73 and the channeling property do argue that it's corrective in nature. But there won't be any confirmation of completion of such fall until a break of 98.87 resistance. On the other hand, it's still possible that decline from 101.43 is resuming whole down trend from 124.13. Hence while we'll favor upside as long as 93.01 support holds, we'll stay neutral until at least a break of the upper channel resistance at 96.96. Meanwhile, completion of rebound from 91.73 on failure to break through the channel resistance will in turn argue that whole fall from 101.43 is still in progress for at least another low below 91.73.

Forex Trading Forecast: U.S. Dollar to Head Lower

The U.S. dollar was barely moved one way or the other by recent unemployment data. This is hardly surprising, since the news most people have been waiting for is the GDP report from Quarter 2.

After the report was released, the numbers showed that the U.S. economy shrank by 1% in the second quarter of 2009. While that still shows that the economy has been shrinking, the fact remains that the shrinkage is much lower than expected. And that is what is likely to affect the forex trading forecast for the U.S. dollar.

The indications are that the U.S. economy is slowly moving out of its recession. The latest news rekindles optimism that the economy will be out of the recession by the end of the year so that it can focus on economic recovery. As this happens, sterling and euro are expected to gain the upper hand as the greenback is no longer needed as a safe haven in currency trading.