Best Thread FXCM/DailyFX Signals and Strategies

[Jason Rogers]

SSI: The Speculative Sentiment Index

The SSI is reported Every Thursday at DailyFX.com and twice every trading day inside DailyFXplus.com

British Pound Breakout Seems Unlikely

GBPUSD – Forex trading crowds have aggressively sold into recent British Pound strength, giving us contrarian signal that the pair may continue its rally against the US Dollar (ticker: USDOLLAR). Indeed, traders are now their most net-short GBPUSD since the pair rallied into its $1.65 highs through late 2011. Can we set a similar sentiment extreme and an important GBPUSD top through short-term price action? A hold of major trading ranges in other USD currency pairs suggests the GBP may likewise remain below highs. We hesitate to join such one-sided retail trading crowd sentiment, but a major break higher seems relatively unlikely without follow-through from other currency pairs.

--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com

 

[Jason Rogers]

Two Proven Ways to Trade a Consolidation Zone

Oftentimes after a currency pair has been in a trend for a time, it will begin to consolidate or trade in a range. A trend trader can cease to trade the pair until it begins trending again or they can adjust their trading strategy so they can utilize what the market is giving them.

The NZDUSD currency pair is currently providing the trader with a consolidation zone.

Let’s take a look at the Daily chart of the pair below…

The pair has been consolidating since about the first week of March. During the consolidation it has respected a support level of .8086 and a resistance level of .8281…a range of 195 pips.

To a trader who would be interested in trading the pair while it is in the range, they could buy the pair when it is trading very close to support and place a stop below the lowest wick outside the range. Should the pair continue its pattern of trading up from support, the trader could set a limit at or close to the top of the range to exit the trade profitably.

When the pair is trading very near the top of range at resistance, a trader could short the pair with a stop just above the highest wick outside the range. Should price action continue to trade down from resistance, the trader could set a limit at or close to the bottom of range to exit the trade profitably.

Since this consolidation zone is just barely above the 200 Period SMA, there is not really a strong trading bias either to the upside or the downside on this pair.

A key to remember in range trading is not to enter a trade while price action is in the middle of the range. When price is in the middle, the trader loses the “edge” of which way the pair is more likely to move. Also, with price in the middle of the range, the placement of the stop will be a greater distance from the entry, thereby taking on a greater amount of risk.

We must remember that a consolidation zone can end at any time. Price can “breakout” of that zone/range at any time. For that reason it is imperative that protective stops be in place on a trade at all times.

Speaking of breakouts, when that occurs, here is how a trader can handle it…

If price simply breaks above/below the zone, a very aggressive trader can choose to enter at that point. A break to the upside would mean that a trader would take a long (buy) position with a stop below the bottom of the range.

However, as can be seen on the chart, there are several points where price broke out of the range, both above and below it, and then moved back within the range before the Daily candle closed. In other words price “wicked” above/below the range. In each of these cases the aggressive trader who entered on those entry signals would either have been stopped out or had to endure strong movements against their position.

A more conservative way to trade a breakout would be to hold off on entering the trade until a candle closes outside the zone. A candle closing outside the range (where the body of the candle remains outside the range as opposed to simply “wicking” outside the range) will signal a greater likelihood that the trade will continue to move in the direction of the breakout.

---Written by Richard Krivo, DailyFX Trading Instructor

For everyone interested in range trading, I wanted to highlight a new Expert Advisor called the Cyclical Range Trader.

The Cyclical Range Trader EA buys and sells depending on the value of the CCI indicator. The CCI (Commodity Channel Index) indicator is used to locate overbought and oversold conditions, identify new trends, and warn of extreme conditions. It measures the current price level relative to an average price level over a given period of time.

You can download the Cyclical Range Trader at FXCMapps.com

 

[Jason Rogers]

What’s Expected:

Time of release: 05/01/2012 4:30 GMT, 0:30 EDT
Primary Pair Impact: AUDUSD
Expected: 4.00%
Previous: 4.25%
DailyFX Forecast: 4.00%

Why Is This Event Important:

The Reserve Bank of Australia is widely expected to lower the benchmark interest rate by 25bp to 4.00% in May, and we may see the central bank carry out its easing cycle throughout 2012 in an effort to combat the slowing recovery. According to Credit Suisse overnight index swaps, market participants see borrowing costs falling by more than 100bp over the next 12-months, and the RBA may embark on a series of rate cuts going into the second-half of the year as the fundamental outlook for the $1T economy deteriorates.

Recent Economic Developments

The rise in private sector consumption paired with the jump in employment may allow the RBA to preserve its wait-and-see approach, and the development may ultimately produce a relief rally in the AUDUSD as market participants scale back speculation for lower borrowing costs. However, easing price pressures paired with the slower rate of growth may encourage the central bank to further support the ailing economy, and we may see Governor Glenn Stevens strike a very dovish outlook for monetary policy as the

Potential Price Targets For The Rate Decision

A look at the encompassing structure sees the AUDUSD breaking above the confluence of channel resistance dating back to March 6th, the 200-day moving average, and the 50% Fibonacci retracement of the December advance at 1.0360 last week before encountering resistance at the convergence of the 38.2% retracement and the 50-day moving average at 1.0475. We will reserve this level as our topside limit which if breached shifts our focus to subsequent resistance targets. Key support now rests at 1.0360 backed by the 61.8% retracement at 1.0240.

The scalp chart shows the aussie trading within the confines of an ascending channel formation after briefly breaching channel resistance on Friday. A break below this formation eyes interim support targets at the 61.8% Fibonacci extension taken from the April 10th and 24th troughs at 1.0385 backed by the 50% extension at 1.0360, and the 38.2% extension at 1.0330. A break below the 1.03-figure risks substantial losses with such a scenario eyeing soft support at 1.0275 and the April 24th low at 1.0246 with a move below the 2012 low at 1.0225 shifting our focus more aggressively to the short side. Interim resistance stands with the 78.6% extension at 1.0424 backed by 1.0450 and the April high at 1.0472. Should the print prompt a bearish response look to target downside levels with only a breach above the April high negating our bias.

How To Trade This Event Risk

Forecasts for a 25bp rate cut certainly instills a bearish outlook for the high-yielding currency, but the rate decision may foster a long AUDUSD trade should the RBA preserve its wait-and-see approach in May. Therefore, if the central bank keeps the benchmark interest rate at 4.25%, we will need a green, five-minute candle following the announcement to establish a buy entry on two-lots of AUDUSD. Once these conditions are fulfilled, we will place the initial stop at the nearby swing low or a reasonable distance from the entry, and this risk will generate our initial target. The second objective will be based on discretion, and we will move the stop on the second lot to cost once the first trade hits its mark in an effort to preserve our profits.

On the other hand, the RBA may sound increasingly dovish this time around as policy makers take note of the slowing recovery, and we may see the central bank take a more aggressive approach in stimulating the ailing economy as growth and inflation falter. As a result, should the RBA lower the key rate to 4.00% and highlight additional rate cuts for the coming months, we will carry out the same strategy for a short aussie-dollar trade as the long position laid out above, just in the opposite direction.

Impact that the RBA Interest Rate Decision has had on AUD during the last meeting

As expected, the Reserve Bank of Australia held the benchmark interest rate at 4.25%, but kept the door open to ease monetary policy further as ‘the board judged the pace of output growth to be somewhat lower than earlier estimated.’ The dovish done struck by the RBA dragged on the Australian dollar, with the AUDUSD slipping back below 1.0400, and the high-yielding currency continued to lose ground throughout the day as the pair closed at 1.0329.

--- Written by David Song, Currency Analyst and Michael Boutros, Currency Strategist at DailyFX.com

And to stay on top of market moving news as it happens, you can use the DailyFX News Notifier.



The DailyFX News Notifier indicator is the perfect companion for traders who do not want to be caught off guard by economic announcements. The announcements that are shown on the DailyFX Economic Calendar display on any chart where the indicator is added, helping you stay informed and make sound trading decisions.

You can download the DailyFX News Notifier for MT4 at FXCMapps.com

 

[Jason Rogers]

Holiday Rollover

Hi Everyone,

Due to the Golden Week holidays in Japan, all Yen crosses will have 5 days’ worth of rollover interest today except for GBP/JPY which will have 6 days’ worth.

For example, that means if you buy 10k of GBP/JPY and keep the trade open through 5pm New York time today, you will earn $0.66 or 66 cents. On the flip side, if you sell 10k of GBP/JPY and hold that trade open through 5pm, you will pay $1.56. You can always check what amount of rollover you can earn or pay for holding a particular currency pair through 5pm by looking at the RollS and RollB on the Trading Station.

And to keep track of when holidays will affect the number of days of rollover, you can look at the Rollover Calendar at DailyFX.com

Jason

 

[Jason Rogers]

Large Miss on U.S. April NonFarm Payroll Hiring Pares Risk Appetite

THE TAKEAWAY: [U.S. NFP hiring in April rose less than expected, second month of slowdown; jobless rate falls slightly] > [Concerns U.S. economy could be losing momentum] > [USD gains vs. AUD]

Hiring in the U.S. in April was hugely disappointing, as the rise in nonfarm payrolls (NFP) fell for the second straight month. The U.S. Bureau of Labor Statistics (BLS) reported today that employees added 115,000 workers to their payrolls in April, down from March’s revised figure of 154,000, which was revised upwards from its original print of 120,000. The median forecast of 85 economists surveyed by Bloomberg News had called for an increase of 160,000. Private payrolls rose by 130,000 in April, down from 166,000 in March, while manufacturing added 16,000 jobs compared to 41,000 jobs a month ago. Employment increased in professional and business services, retail trade and health care, but fell in transportation and warehousing.

Meanwhile, the unemployment rate fell slightly in April to its lowest level since January 2009, declining to 8.1 percent from 8.2 percent the previous month. The drop in jobless rate was due to a continuing decline in the participation rate.

The large miss in NFP fueled concerns that the U.S. economy could be losing momentum, dampening hopes that a stretch of strong winter hiring had signaled a turning point for the economic recovery. The NFP print follows on the back of a disappointing rise in employment in April, according to the ADP’s national employment report that was released on Wednesday.

AUDUSD 1-minute Chart: May 4, 2012

Following the data release, the greenback initially weakened against most of its major currency peers. However, the U.S. dollar quickly reversed its losses against the higher-yielding currencies as the weaker employment figures weighed on risk sentiment and sent investors back to the reserve currency. After an initial dip, the U.S. dollar rose as much as 25 pips against the Australian dollar, and at the time of the report, the AUDUSD pair was trading at $1.0224.

--- Written by Tzu-Wen Chen at DailyFX.com

NEXT EVENT TO WATCH
French Elections to be held on Sunday

It is highly likely that the French elections will impact the Euro, but over the medium- and long-term, not necessarily the day after the results are announced. French President Sarkozy is out of touch with the French people, an increasingly disgruntled populous becoming more averse to helping saving the notion of a broader Euro-zone. Case and point: Marine Le Pen, the president of Front National (FN), a far-right nationalist party, garnered approximately 18 percent of the vote during the first round of the French elections. Leading challenger Socialist Francois Hollande’s general platform differs greatly from that of Ms. Le Pen but they share one commonality: they both oppose how President Sarkozy has handled the European sovereign debt crisis. In fact, Mr. Hollande has sworn to renegotiate the European Union Fiscal Compact. He has also said that it’s time to concentrate on growth rather than austerity – as if economic growth in the current environment is that simple or was overlooked entirely the past few months.

If Mr. Hollande moves to repeal austerity measures and in the process frays France’s relationship with Germany, market participants will be hamstrung by political war games with the Euro as the collateral damage. Confidence would be lost in the Euro-zone’s core and leadership; bond yields will rise across the region; and the European Central Bank will be forced to act and if they don’t, the crisis could worsen. The international community (mainly via the International Monetary Fund) has been reticent in offering up a significant package of support, and I believe we’re done seeing more contributions to the ‘save Europe fund’ (loosely quoting Canadian Finance Minister Jim Flaherty). A Euro-zone without political leadership in union or support from a supranational agency, a crisis of confidence in the Euro-zone stoked by a difficult Mr. Hollande would easily sink the EURUSD below 1.2000.

--- Written by Christopher Vecchio at DailyFX.com

And to stay on top of market moving news as it happens, you can use the DailyFX News Notifier.



The DailyFX News Notifier indicator is the perfect companion for traders who do not want to be caught off guard by economic announcements. The announcements that are shown on the DailyFX Economic Calendar display on any chart where the indicator is added, helping you stay informed and make sound trading decisions.

You can download the DailyFX News Notifier for MetaTrader 4 at FXCMapps.com

 

[Jason Rogers]

AUDUSD: Trading Australia’s Employment Report

Trading the News: Australia Employment Change

What’s Expected:

Time of release: 05/10/2012 1:30 GMT, 21:30 EDT
Primary Pair Impact: AUDUSD
Expected: -5.0K
Previous: 44.0K
DailyFX Forecast: -20.0K to 5.0K

Why Is This Event Important:

Australia is expected to shed 5.0K jobs in April following the 44.0K expansion during the previous month, and the slowdown in the labor market may drag on the exchange rate as it dampens the outlook for the $1T economy. Indeed, the Reserve Bank of Australia lowered its forecast for growth and inflation as the central bank expected job growth to ‘remain subdued,’ and it seems as though the central bank will carry its easing cycle into the second-half of the year in an effort to encourage a sustainable recovery. According to Credit Suisse overnight index swaps, market participants still see the benchmark interest rate falling by nearly 100bp over the next 12-months, and we may see the RBA take a more aggressive approach in addressing the risks surrounding the region as the fundamental outlook for the world economy remains clouded with high uncertainty.

Recent Economic Developments

The ongoing improvement in business confidence paired with the expansion in private sector consumption certainly bodes well for hiring, and a positive jobs report may push the AUDUSD back above the 23.6% Fibonacci retracement from the 2010 low to the 2011 high around 1.0350-60 as it dampens expectations for lower borrowing costs. However, the persistent slack in the real economy paired with the slowdown in world trade may lead businesses to scale back on employment, and a marked drop in job growth would heighten expectations for another rate cut as the RBA maintains a cautious tone for the region. In turn, we may see the AUDUSD continue to give back the rebound from 2011, and the pair may fall back towards the 38.2% Fib around 0.9930-50 as market participants look for a series of rate cuts from the RBA.

Potential Price Targets For The Release

A look at the encompassing structure sees the AUDUSD trading within the confines of a descending channel formation dating back to the February 29th high with the pair rebounding off of channel support in early US trade. The aussie is at critical levels here with a break below parity risking accelerated losses for the high yielder. Daily resistance now stands at the 78.6% Fibonacci retracement taken from the December advance and is backed by the January low at 1.0140.

Our scalp chart shows the pair trading within the confines of an embedded descending channel formation with the rebound off channel support reinforcing the price action seen on the daily chart above. Soft interim support rests at 1.0020 backed by the 61.8% Fibonacci extension taken from the April 27th and May 7th crests at 1.0006. Interim topside resistance stands at the 50% extension at 1.0050 with a likely break here eyeing subsequent ceilings at the 38.2% extension at 1.0090 and 1.0115. Should the print prompt a bearish response look to target downside levels with a break below channel support offering further conviction on our directional bias. Such a scenario eyes downside targets at 9980, the 78.6% extension at 9950 and 9920.

How To Trade This Event Risk

Expectations for a drop in employment certainly casts a bearish outlook for the high-yielding currency, but a positive development could pave the way for a long Australian dollar trade as it dampens expectations for another rate cut. Therefore, if the region unexpectedly adds more jobs in April, we will need to see a green, five-minute candle following the release to generate buy entry on two-lots of AUDUSD. Once these conditions are met, we will set the initial stop at the nearby swing low or a reasonable distance from the entry, and this risk will establish our first objective. The second target will be based on discretion, and we will move the stop on the second lot to cost once the first trade reaches its mark in order to protect our winnings.

In contrast, the slowing recovery in Australia paired with decline in global trade casts a dour outlook for the labor market, and a dismal print could trigger a sharp selloff in the exchange rate as market participants expect to see a series of rate cuts from the RBA. As a result, if employment contracts 5.0K or greater from the previous month, we will carry out the same strategy for a short aussie-dollar trade as the long position laid out above, just in the opposite direction.

Impact that the change in Australia Employment has had on AUD during the last month

Employment in Australia jumped 44.0K following the 15.4K contraction February, while the jobless rate held at 5.2% for the second consecutive month in March. Indeed, the better-than-expected print propped up the Australian dollar, with the AUDNZD climbing back above 1.0350, and the high-yielding currency continued to gain ground throughout the day as the exchange rate closed at 1.0439.

--- Written by David Song and Michael Boutros at DailyFX.com

And to stay on top of market moving news as it happens, you can use the DailyFX News Notifier.



The DailyFX News Notifier indicator is the perfect companion for traders who do not want to be caught off guard by economic announcements. The announcements that are shown on the DailyFX Economic Calendar display on any chart where the indicator is added, helping you stay informed and make sound trading decisions.

You can download the DailyFX News Notifier for MetaTrader 4 at FXCMapps.com

 

[Jason Rogers]

The US Dollar: The World’s ’Safe-Haven’

As we often see in the carry trade, investors acting rationally in normal market environments will follow yield. Meaning, if all factors are equal and you are given a choice between an investment paying one percent and an investment paying five percent – most rational people will choose the five percent option.

This article will examine the what’s and why’s of the times when you might want to pick the one percent investment instead.

One look at the AUDUSD chart from 2010, which saw lows of .8000 move up to 1.1000, the entire period of which positive rollover was being accrued for holding long positions in the pair, will confirm the fact that, typically, investors will follow yield.

Created with Marketscope/Trading Station​

But what happens when the market environment isn’t normal?

Such as the 2008 Financial Collapse... or the Tech bust… or the S&L crisis?

These are just three of the bigger and more recent examples, but you probably see where this is going: While a five percent investment will often be more attractive than the one percent investment – once the question of losing your investment altogether comes into play, the ‘safety’ of each option becomes all the more important.

As a matter of fact, if you look at the above chart you’ll notice it wasn’t all roses and daylight for ‘The Aussie’ in 2010. I’ll post the chart below from a different angle than we had looked at previously:

Created with Marketscope/Trading Station​

Relative Safety

While the thought of an entire economy such as Europe, or Australia going bankrupt may seem ludicrous, we have to realize that investors, in all of their fashions whether they are hedge fund traders or central bankers – all hate to lose money.

And through the tests of time, the United States Treasury Bill has proved to be one of the safest financial instruments the world has ever seen.

In the article, How Treasuries Impact Forex Capital Flows – we saw exactly that; how traders in panicking markets will often choose ‘return of capital,’ over ‘return on capital.’

The above chart illustrates this: If investors are fearful of a recession – they will buy US Dollars despite the fact that any potential returns may be minimal. They are instead choosing ‘safety’ over ‘profit potential.’ They can then invest those US Dollars into Treasury Bills, and despite the fact that they may have smaller profit potential there is also a far smaller risk of actually losing their investment.

Because – if I can earn a rollover payment for holding the position at 5 O’clock today – but the trade loses more money than I make in rollover – what is the point?

So if there is perceived economic weakness, investors may run to US Dollars in an attempt to avoid the chaos. This is often called a ‘flight-to-quality,’ or a ‘safe-haven run.’

A strengthening currency, much like what we’ve seen in Switzerland or the ravaged economy of Japan, can rapidly change the balance of payments and cost a country greatly. But because of the sheer size of the United States economy, investors continue to look for ways of safely parking money so that it may not be exposed to principal risk.

--- Written by James B. Stanley, Trading Instructor at DailyFX.com

 

[Jason Rogers]

USD Rally At Risk Ahead Of FOMC Minutes, AUD At Risk Amid RBA Minutes

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) is 0.11 percent higher from the open after moving 70 percent of its average true range, and the greenback looks poised to appreciate further in the coming days as the upward trending channel continues to take shape. However, as the 30-minute relative strength index falls back from overbought territory, with the oscillator carving out a series of lower highs, the small pullback may ultimately turn into a larger correction, and the bearish divergence may push the pair back towards 9,900 to test for near-term support. As market participants turn their attention to the FOMC meeting minutes due out on Wednesday, we may see the dollar consolidate going into the middle of the week, but the fresh batch of central bank rhetoric may prop up the reserve currency should the central bank continue to soften its dovish tone for monetary policy.

As the FOMC Minutes highlight the biggest event risk for this week, there’s speculation that the Fed will keep the door open to expand monetary policy further, but we may see a growing rift within the committee as Chairman Ben Bernanke continues to talk up expectations for another large-scale asset purchase program. It seems as though an increasingly number of the FOMC wants to move away from the easing cycle as the economic recovery gradually gathers pace, and central bank officials may sound more hawkish this time around as the stickiness in underling price growth raises the risk for inflation. As a result, we may see the group lean away from its 2014 pledge, and the committee may start to discuss an exit strategy as the world’s largest economy gets on a more sustainable path. As the relative strength index maintains the upward trend from earlier this month, we are still looking for a run at the 78.6 percent Fib around 10,118, and the policy statement may reinforce our bullish call for the USD should the Fed conclude its easing cycle this year.

The greenback rallied against two of the four components, led by a 0.57 percent decline in the Euro, while the Australian dollar slumped another 0.30 percent amid the flight to safety. As market participants see the Reserve Bank of Australia carrying its easing cycle into the second-half of the year, the meeting minutes on tap for later tonight may reinforce a bearish outlook for the high-yielding currency, and the central bank may implement a series of rate cuts in order to combat the slowing recovery. As the government shoots for a A$1.54B budget surplus for the fiscal year starting July 1, the increased effort to balance public finances certainly gives the RBA greater scope to shore up the ailing economy, and a dovish statement could trigger another selloff in the AUDUSD as market participants increase bets for lower borrowing costs. In turn, we may see the aussie-dollar make another run at the 38.2 percent Fib from the 2010 low to the 2011 high around 0.9930-50, and the high-yielding currency is likely to face additional headwinds over the course of the year as growth and inflation in the $1T economy falters.

--- Written by David Song, Currency Analyst at DailyFX.com

And to stay on top of market moving news as it happens, you can use the DailyFX News Notifier.



The DailyFX News Notifier indicator is the perfect companion for traders who do not want to be caught off guard by economic announcements. The announcements that are shown on the DailyFX Economic Calendar display on any chart where the indicator is added, helping you stay informed and make sound trading decisions.

You can download the DailyFX News Notifier for MetaTrader 4 at FXCMapps.com

 

[Jason Rogers]

Yen Top Performer as Aussie, Euro Stabilize; Sterling Tumble Continues

Fundamental Headlines
- Jobless Claims in US were Unchanged at 370,000 Last Week
- Several on FOMC said Easing May Be Needed on Faltering
- Spain Beset by Bank Crisis, Recession, Bond Pressure
- China Overtakes India as Top Gold Consumer
- Greece Swears in Caretaker Government

European Session Summary
Price action was relatively muted in the overnight sessions, with the Asian market participants bidding up higher yielding currencies and risk-correlated assets and European market participants pulling them back down to their daily opening prices. Ahead of the US cash equity session, the US Dollar was relatively unchanged as a result, but there were still some big moves elsewhere.

The two biggest developments among the majors come out of Japan and the United Kingdom. In terms of Japan, first quarter growth came in much better than expected and the fourth quarter reading from 2012 was revised higher. The 4.1 percent preliminary print was above the 3.5 percent growth forecast, according to a Bloomberg News survey, and the prior reading was revised higher from -0.7 percent to 0.1 percent, on an annualized-basis. Growth was also stronger on a quarterly-basis, up 1.0 percent against a forecast of 0.9 percent, with the fourth quarter reading revised higher to 0.0 percent from -0.2 percent.

The Japanese Yen has been stronger as a result today, a sign in my eyes that market participants are pricing out the possibility of another Bank of Japan stimulus package. Indeed, after the better than expected growth data a think tank report suggested that the BoJ would choose not to ease at its next meeting, providing an additional catalyst to provoke the Japanese Yen’s move higher (UPDATE: the Yen has continued to strengthen all morning following the poor Philly Fed print).

Meanwhile, the British Pound has maintained its losing streak against the US Dollar, pressing the 1.5800 level after testing 1.6100 just on Monday. In part this may be due to commentary out of British policymakers, fiscal and monetary alike. Chancellor of the Exchequer George Osborne said that Britain is making “necessary” contingency plans to deal with the fallout from a possible Greek exit from the Euro-zone, stating that “the genie is out of the bottle” now that European ministers and European Central Bank officials are “openly speculating” on Greece’s departure. Although British labor market data was better than expected yesterday, there’s clearly some concern that a dramatic downturn in the Euro-zone could significantly hurt the British economy. While the EURGBP has slid amid the crisis, the recent tumble of the GBPUSD could be a sign that liquidity issues are coming to the foreground.

Taking a look at credit, pressure is back on the shorter-end of the curve, with Italian and Spanish 2-year notes climbing to yields of 3.628 percent and 4.078 percent, respectively. On the longer-end, Greek 10-year notes lead the decline, sinking 36.9-basis points to a 27.608 percent yield.

GBPJPY 5-min Chart: May 17, 2012

Charts Created using Marketscope – Prepared by Christopher Vecchio

The Japanese Yen is the top performer, rallying by 0.83 percent against the US Dollar, which is among the weakest currencies on the day. The Australian and New Zealand Dollars are also higher against the Greenback, up 0.31 percent and 0.24 percent, respectively. The British Pound trails all of the majors, with the GBPUSD depreciating by 0.57 percent.

24-Hour Price Action

Key Levels: 16:30 GMT

Thus far, on Thursday, the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is trading relatively unchanged, at 10107.01 at the time this report was written, after opening at 10108.32. The index has traded mostly higher, with the high at 00141.60 and the low at 10098.46.

--- Written by Christopher Vecchio, Currency Analyst at DailyFX.com

 

[Jason Rogers]

Can the Facebook IPO Revive Equities and Torpedo the US Dollar?

Whether you’re a user or not, you no doubt know of Facebook. The social networking service is visited by an estimated 900 million active users per month and is a cultural phenomenon. Can we expect another, more unusual miracle from the tech giant? Can the company’s IPO help lift the general sentiment and the broader equities market? We will discuss how this event could potentially alter the course of market itself and how – through risk trend connections – it could thereby sabotage the impressive run of the US dollar this month.

What is Facebook?

First some background on the event itself. Though often discussed in both social (for the number of friends you have) and financial circles (for its questionable revenue stream), our interests lie in the grandeur of the Facebook IPO. With an expected $38 listed share price and expected 421 million shares expected to be released into the market, this approximate $16 billion initial public offering would be the third largest ever. Furthermore, with the sale and pricing, the firm would have a theoretical market capitalization just north of $100 billion. By any measurement, this is a massive undertaking.

Why Does a Facebook IPO Matter?

It is in the sheer size of this event that the broader market influence can be read. Over the past three months, the backdrop of investor sentiment has slowly begun to deteriorate. With the collective expectations of slower global growth, a rise of financial troubles in the Euro Zone (Greece is a typical headline for any given week) and dependency on stimulus growing painfully obvious, the optimism that has guided the markets since March of 2009 looks to have met a critical tipping point.

Just over the past week, a passive shift in the balance of sentiment has taken a more active pace in outright selling that has driven the benchmark S&P 500 to three month lows and into its most convincing bear trend since August of last year (see the chart below). The wave of fundamental encouragement this move has mustered suggests this is a drive that could turn into a lasting and meaningful trend. A dire situation like this can be turned by few things. One such catalyst over the past few years is the hope for further stimulus and quantitative easing. The other could be a big-ticket event like this that draws in a much-needed shot of capital investment – bolstering fellow sector members and perhaps even the underlying market.

Source: FXCM Marketscope – S&P 500 CFD

The Market Impact

To understand the impact, we should walk through the scenarios for impact. Having already suffered a significant drop, capital markets may find themselves somewhat exhausted and looking for a catalyst to spur a relief rally – whether it eventually turns out a correction or true trend reversal is likely beyond the scope of this event itself. With the 11:00 AM EST listing, the influx of capital and likely rally in share price could lift other industry competitors such as investor and hedge fund-favorite Apple. Such a boost against the belief that a correction is overdue could play as a spark for a pre-existing bias.

Alternatively, this historic event for the equity market could lose its fight against the market’s prevailing fear. If, for example, another jolt of fear is leveraged by the European financial crisis or the realization that the Fed won’t rush to the market’s rescue in this current decline; the masses may ignore the temporary distraction. If there is no bounce to unload, then you sell at market.

Though this is a very unique event, a parallel of influence can be made to the Google IPO back on August 19th, 2004. The day of the $1.67 billion offering itself did not offer immediate lift, but the lead up to the sale saw a significant change in direction (see the S&P 500 chart below). There are no doubt many factors that went into this tide shift, but the expectation of the event buoyed the market outlook.

Source: FXCM Marketscope

The Currency Impact

If we can make the case for a meaningful shift in equities, it is an easy step to a heavy FX market influence. The balance of risk and reward is fundamental to every trade made. However, the sensitivity of different assets / currencies to the oscillation between fear and greed can vary. That said, when everything that is considered a safe haven rises and everything with any connection to higher yield (and thereby risk) sinks, we have an overwhelming sign that wholesale ‘risk aversion’ is driving the markets. That seems to be the case currently as stocks, speculative commodities and high-yielding currencies are all dropping while the US dollar and Treasuries (the accepted harbor for all financial storms) advance. You can see this relationship playing out in the chart below since 2008 and showing particularly strong correlation just over this past month.

Source: FXCM Marketscope

Therefore, if the S&P 500 garners a positive vibe from the Facebook IPO (capitalizing on the need for a correction), the positive sentiment drive could prove an equal weight to the safe haven US dollar. The Dow Jones FXCM Dollar Index happens to find itself in a very sensitive position as well (see the chart below). Having just breached 16-month highs this week, follow through is a tenuous bearing. It requires further encouragement. A positive drive for capital markets spurred by an influential catalyst could sabotage the fledgling move.

Source: FXCM Marketscope – Dow Jones FXCM Dollar Index

The risk of volatility to equities and the dollar can be applied to particularly risk-sensitive currency pairs. Below we see the correlation between the carry-intensive AUDUSD currency pair and the benchmark S&P 500 Index. This connection to a common fundamental driver (risk appetite trends) means that a sudden shift (or amplification of the prevailing trend) could spur both stock activity and capital flow in the carry trade intensive pairs.

Source: FXCM Marketscope – Dow Jones FXCM Dollar Index

The impact could prove just as significant for a more stalwart currency pair. EURUSD doesn’t have the attachments to yield income that its Australian counterpart does, but recent doubts over the financial health of the Euro-area have undermined the shared currency’s competition reserve status to the greenback. Therefore, reprieve would offer the batter euro a much needed rebound. That said, if the IPO proves a volatility inducement without an optimistic cut, the catalyst could prove painful for this FX benchmark.

Source: FXCM Marketscope – Dow Jones FXCM Dollar Index

A Last Word

One last thing to consider: though the IPO itself happens very quickly, the impact on the markets could play out over a longer period of time. Post-IPO stock reactions often see immediate volatility as the regular investors plow in, there is a period of accumulation and then early adopters look to take profit resulting in a pullback. To tap into the underlying sense of risk appetite trend (a weighty market state), this event has to truly impress (for better or worse) and work with sentiment that is already inherent in the market. For that reason, we can have an extended impact from this event; but its true influence is as a catalyst rather than the momentum.

--- Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com

 

[Jason Rogers]

Trade with Friends

Hi Everyone,

We've had a lot of traders ask for a way to easily share trades on Twitter and Facebook. FXCM's Programming Services team has created a free app now available in the app store called Trade with Friends. The app will give you the option to automatically share your trades on Facebook and Twitter to discuss with friends or other traders. Below is a screenshot of what the post will look like on Facebook and Twitter:

Here's a quick guide on how to setup the app to share your trades.


Step 1. Installation and Login

a. You can download Trade with Friends from the FXCMapps.com website. When you are at the app page, click the Purchase button at the top right. The app is free, but you still need to click on "purchase" to go through the quick app store process to access the download file. The installation works like other programs you have probably installed on your computer where you double click on the .exe file and go through the installation window that appears.

b. After completing the installation, double-click on the Trade with Friends icon on your desktop and enter your account login details. You will need an FXCM account login. If you don't have one yet, you can register a free practice account at the FXCM.com website. If you look in the screenshot below, you will see what the Trade With Friends icon looks like on the left, and the actual program on the right once it has opened.​

Step 2. Connecting to Facebook and Twitter

At the top left of the Trade with Friends app, click on “Login” and select Twitter. After selecting Twitter, an authorization box will appear for you to login to twitter. FXCM is not able to see your twitter password when you give authorization. The below screenshot shows buttons to click on and what will appear.

The same steps are used to authorize Facebook, but you would click on Login > Facebook instead.​

Please note: While FXCM keeps all of your trading information private, FXCMs privacy policy may not fully apply to clients exposing their own information publicly. Trade With Friends app allows you to broadcast your trading details. Users of this app make their own judgment about how much information and to whom they wish to share it with. Lack of proper privacy controls can share information to unwanted individuals and/or parties.

Please feel free to reply with any questions about setting up the app, and I would appreciate any feedback you have about the app.

Jason

 

[Jason Rogers]

US Dollar Sells Off After Disappointing May US Consumer Confidence

Declining sentiment about the labor market has damaged US consumer confidence, the Conference Board’s reading for May showed. The headline reading fell to 64.9 from a revised 68.7 in April, below the consensus forecast of 69.6, according to a Bloomberg News survey. Today’s reading also comes in below the three-month confidence average at 67.7.

Most notably, the “Present Situation” component decline to 45.9 in May from 51.2 in April, while “Expectations” dropped to 77.6 from 80.4, the subcomponent’s first sub-80 reading since January. Additionally, the “Labor Index Differential,” the subcomponent that subtracts “Jobs Hard to Get” from “Jobs Plentiful” declined to -33.1 from -29.7, suggesting that the labor market is starting to weaken again.

USDCAD 1-minute Chart: May 29, 2012

Charts Created using Marketscope – Prepared by Christopher Vecchio

Following the release, the US Dollar ticked higher against high beta currencies such as the Australian and New Zealand Dollars, but any gains were erased rather easily as the report was digested. While the Japanese Yen maintained its gains against the US Dollar, the AUDUSD and EURUSD quickly shot higher, with the former gaining approximately 30-pips and the latter gaining 12-pips. The Canadian Dollar was notably stronger, with the USDCAD falling from 1.0237 to 1.0213, at the time this report was written.

--- Written by Christopher Vecchio, Currency Analyst

And to stay on top of market moving news as it happens, you can use the DailyFX News Notifier.



The DailyFX News Notifier indicator is the perfect companion for traders who do not want to be caught off guard by economic announcements. The announcements that are shown on the DailyFX Economic Calendar display on any chart where the indicator is added, helping you stay informed and make sound trading decisions.

You can download the DailyFX News Notifier for MetaTrader 4 at FXCMapps.com

 

[Jason Rogers]

Euro Forecast at $1.19 as Sentiment Remains Extreme

Hi Everyone,

Like me you’ve probably been watching as the Euro has plummeted over the past two weeks and wondered where there might be a reversal. The weekly SSI report was released by DailyFX today and traders are still overall long the EUR/USD by 56%, which indicates a contrarian signal for further EUR/USD losses. Here’s what David Rodriguez had to say about positioning in today’s report:

Euro Forecast at $1.19 as Sentiment Remains Extreme

EURUSD – Forex trading crowds turned aggressively net-long the Euro against the US Dollar as the pair crossed below the key $1.3000 mark, and exceedingly one-sided sentiment continues to favor EURUSD losses.

…..

The sharp moderation warns that the EURUSD could consolidate or bounce modestly in the coming days, but the overall trend remains clear in our opinion and we favor continued declines until sentiment sees a more significant shift.​

Today’s SSI report for all the currency pairs can be found at DailyFX - Forex News, Currency Trading, FX News, Forex Trading News

The real-time SSI data is not available publicly, but it is incorporated into the classic Trading Signals in DailyFX PLUS, and Breakout2 tends to be the most popular signal traders ask about. Breakout2 wasn’t performing very well during low volatility conditions before recent breakouts, since SSI tends to work best as a contrarian indicator in trending markets. When the market ranges, the majority of traders will tend to be right when trying to pick tops and bottoms. The performance stats for Breakout2 (see below) have to perform better with the increase in trending market conditions. Here’s a screenshot of recent strategy performance from the website.

In order to find Breakout 2 in DailyFX PLUS, you’ll need to login at www.DailyFXplus.com and navigate to Trading Signals, and then click on the “Classic Signals” link at the top of the page in the middle.

 

[Jason Rogers]

Massive US Nonfarm Payroll Miss in May Fuels Calls for More QE

THE TAKEAWAY: [U.S. NFP hiring in May rises less than expected, third month of slowdown; jobless rate rises slightly] > [Huge jobs data miss prompts further QE] > [USDJPY mixed]

Job growth in the U.S. took a huge hit in May, as the rise in nonfarm payrolls (NFP) plummeted for the third straight month. The U.S. Bureau of Labor Statistics (BLS) reported today that employers added 69,000 workers to their payrolls in May, massively missing the median forecast of 150,000 according to a Bloomberg News survey. April NFP figure was revised downwards to 77,000 from its original print of 115,000. Private payrolls rose by 82,000 in May, down from 87,000 in April, while manufacturing added 12,000 jobs compared to 9000 a month ago.

Meanwhile, the unemployment rate rose to 8.2 percent in May, following a dip to 8.1% in April. This reflects a change in the labor force participation rate, as a rise in May by 0.2 percent to 63.8 percent offset a decline of the same amount in April.

The huge miss in job growth adds to growing concerns of a struggling U.S. labor market and economy. This will put further pressure on the Federal Reserve to boost the U.S. economy with a further round of quantitative easing.

USDJPY 1-minute Chart: June 1, 2012

Chart created using Market Scope – Prepared by Tzu-Wen Chen

Following the data release, the greenback initially plummeted against the yen as the weak employment data adds to support for further stimulus by the Federal Reserve. However, we saw a surprise reversal and spike against the yen, which is likely to be due to intervention by the Bank of Japan to control appreciation of the yen. After falling as much as 11 pips, the U.S. dollar rallied higher against yen and at the time of this report, the USDJPY pair was trading at 78.25 yen.

--- Written by Tzu-Wen Chen at DailyFX.com

 

[Jason Rogers]

Scalping EURUSD Ahead Of Greek Elections- Range Trades In Play

While price action this week has failed to offer clear conviction on a directional bias, the sideways price action across the major currencies presents range trading opportunities for intra-day scalps. The single currency remains at risk amid a steady stream of headlines out of Europe with this weekend’s Greek elections likely to offer further clarity on a timeframe for a possible exit of the euro. It’s important to note that although the broader trend continues to favor further losses, seasonality trends may continue to see the euro remain rather supported after making its yearly low on the first trading day in June. Note that last month the pair made its highs on May 1st before making its monthly low on the May 31st. That said, the lows made on June 1st at 1.2287 remain paramount for the euro with a break below risking substantial losses.

EURUSD Daily Chart

A look at the encompassing structure sees the euro trading within the confines of a broad descending channel formation dating back to August 29th with the single currency now trading within an embedded descending channel formation dating back to the May highs. Interim daily support (on a close basis) rests with the 61.8% Fibonacci extension taken from the October and February highs at 1.2485 and is backed by the soft support at 1.2330 and the 78.6% extension at 1.2215. Key resistance stands at the confluence of the January low at 1.2623 and channel resistance with a breach above the 50% extension at 1.2675 risking a more substantial topside correction. Such a scenario eyes daily targets at the May 21st high at 1.2823 and the 38.2% extension at 1.2865. Note that the daily RSI continues to hold below trendline resistance dating back to the February highs, with a breach above this level dispelling further downside pressure in the interim.

EURUSD Scalp Chart

Our scalp chart shows the EUR/USD holding just above the 50% Fibonacci retracement taken for the June 1st low at 1.2475 with a break below this level eying subsequent support targets at 1.2455, the 61.8% retracement at 1.2430 and our bottom limit at the 1.24-figure. A move below this level offers further conviction on our directional bias with such a scenario eyeing extended break targets at the 78.6% retracement at 1.2370, 1.2320, and the 2012 lows made back on the first of the month at 1.2287.

Interim resistance stands at the 61.8% extension at 1.2520 backed by 1.2555, the 23.6% retracement at 1.2580 and our topside limit at the January low at 1.2622. A daily close above this level shifts our focus higher with topside targets seen at the monthly highs at 1.2665 and the 1.27-handle. A daily average true range of 124pips yields profit targets of 24-26 pips depending on entry. Should ATR pull back dramatically, adjust profit targets as needed to ensure more feasible scalps.

*Note that as markets remain range bound, look for broader market sentiment and RSI conviction to identify intra-day biases with a confirmed break below 1.2475 or a breach above 1.2520 triggering initial scalps. It’s extremely important in these market conditions to give added consideration regarding the timing of intra-day scalps with the opening ranges on a session & hourly basis offering further clarity. We will remain flexible with our bias with a break above our topside limit at 1.2622 eying subsequenttopside targets.

Key Thresholds

---Written by Michael Boutros, Currency Strategist with DailyFX.com

 

[Jason Rogers]

CAUTION: Greek Elections Could Spur Immense Volatility, Euro Outlook Unclear

CAUTION: Uncertain Landscape ahead due to Greek Elections Warrants Reduced Leverage

Greece is headed back to the polls this weekend following the inconclusive results of the May 6 parliamentary elections. Unlike the first elections, the June 17 elections have significant consequences tied to it that will likely result in exceptional market volatility. With the significant event risk expected to occur during hours FXCM’s trading platform is offline (17:00 EDT / 21:00 GMT on Friday to 17:00 EDT / 21:00 GMT on Sunday), Sunday’s open poses the threat of not only a significant gap, but spreads wider than usual as well. Accordingly, we believe that this is not the trading landscape to speculate, and we suggest reducing position sizes given the significant amount of uncertainty forthcoming.

To help traders make the best informed decision headed into the weekend’s critical event, please find below a concise summary of the likely outcomes of the Greek parliamentary elections, and for those interested, a fact sheet on each of the main parties competing in the Greek elections.

THE TAKEAWAY: June 17 Greek Parliamentary Elections > Outcome Could Determine Greece’s Fate in Euro-zone

There are two main parties vying for control of Greece’s government this weekend, the pro-bailout New Democracy party and the anti-bailout Syriza party. In a sense, and especially given the rhetoric deployed by non-Greek European leaders, these elections will determine the fate of Greece’s inclusion in the Euro-zone. It boils down to this: a vote for New Democracy is considered pro-Euro; and a vote for Syriza is considered anti-Euro.

We believe there are four likely outcomes to these elections, with the highest probability of a Euro-negative outcome this weekend. They are:

• SCENARIO #1: New Democracy wins elections and has parliamentary majority (> 151 votes) – EUR BULLISH – 10%
• SCENARIO #2: New Democracy wins elections but does not have majority – EUR BEARISH (least bearish outcome) – 45%
• SCENARIO #3: Syriza wins elections but does not have majority – EUR BEARISH (increasingly bearish outcome) – 40%
• SCENARIO #4: Syriza wins elections and has parliamentary majority – EUR BEARISH (most bearish outcome) – 5%

In light of these expected outcomes, we find it most likely that the elections will not yield the most bullish outcome (scenario #1), but instead, falling somewhere between the least bearish and moderately bearish outcomes (scenario #2, #3). We have derived these probabilities from recent poll figures as well as commentaries from citizens and reporters in Greece.

Recent Poll Numbers

Public Issue, one of the leading opinion companies in Greece, carried out a phone opinion survey from May 25-30 across a general population sample of 1210 adults from across Greece. The results estimated 31.5% support for Syriza, 25.5% for New Democracy, 13.5% for Pasok, 7.5% for Dimar. Compared to poll results from the week prior, support for Syriza had risen 1.5% (from 30%), fallen 0.5% (from 26%) for ND and fallen 2% (from 15.5%) for Pasok. The margin of error was +/-2.8 percentage points.

Kapa Research SA surveyed 1012 people for the Athens-based Ta Nea newpaper, in a poll conducted from May 29 to 31. The results estimated 26.1% support for New Democracy, 23.6% for Syriza and 9.9% for Pasok. Compared the last poll held on May 23-24, support for ND rose 0.3% (from 25.8%), rose 3.5% (from 20.1%) for Syriza, and fell 3.1% for Pasok (from 13%). The overall margin of error is +/-3.1 percentage points.

A Rass poll conducted for Eleftheros Typos showed 26.5% support for New Democracy, 24.2% for Syriza and 9.9% for Pasok.
​

For those interested in learning more about each of the main parties competing in the Greek elections on June 17, please find below a summary of New Democracy’s then Syriza’s platforms.

New Democracy – Platform Points

- Scale back taxes and boost jobs as part of an overall renegotiation of the country’s debt deal with its international creditors
- Replace some taxes, such as a property tax introduced last fall, with “fairer” levies
- Revoke cuts to lowlevel pensions and to the salaries of police and air force employees, as well as boost the job market
- Support low income households and small businesses that have been hit hardest by the debt crisis
- Help indebted households to repay their dues to banks
- Accelerate structural reforms and the privatization program, with the “rebirth” of the public sector with no mass layoffs of civil servants
- In regards to the €11.7 billion in public spending cuts that Greece’s creditors have demanded by the end of 2013, ND (Samaras) said these should be made gradually over the next four years
- Declaration of exclusive economic zones in the sea to exploit natural resources.
- Enforce a harsh line against illegal immigration​

Syriza – Platform Points

- Creation of a shield to protect society against the crisis
- Unconditional guaranteed minimum income or unemployment benefit, medical care, social protection, housing and access to all services of public utilities for all citizens
- Protection of and relief measures for indebted households
- Price controls and price reductions, VAT reduction, and abolition of VAT on basicneed goods
- Disposal of the debt burden, specifically through:
- Moratorium on debt servicing
- Negotiations for debt cancellation
- Regulation of remaining debt to include provisions for economic development and employment
- European regulations on the debt of European states
- Radical changes to the European Central Bank’s role
- Prohibition of speculative banking products
- A pan-European tax on wealth, financial transactions and profits
- Income redistribution, taxation on wealth and elimination of unnecessary expenses
- Productive social and environmental reconstruction
- Nationalization/socialization of banks
- Stable employment with decent wages and social insurance
- Deepening Democracy: democratic political and social rights for all
- Restoration of a strong welfare state
- Immediate rescue of the pension system
- A rise in unemployment benefits
- The introduction of a guaranteed minimum income. “Diverse fragmentary reforms and policies must be united in a national system of guaranteed funds from the national budget. An unconditional basic income, accomodation with heating, electricity and telecommunications, food and clothing, transport, help at home, legal coverage and representation can thus become rights of all citizens.”
- Free health care, which will be financed through a Public Health System
- Protection of public education, research, cultures, and sports from the Memorandum’s policies
- An independent foreign policy committed to the promotion of peace
- Peace-seeking foreign policy
- Disengagement from NATO and closure of foreign military bases on Greek soil
- Aiding the Cypriot people in the reunification of the island​

--- Written by Christopher Vecchio, Currency Analyst for DailyFX.com

 

[Jason Rogers]

EURUSD Falls Back Below 1.26 as Spanish Yields Soar

Fundamental Headlines

- Dollar Shortage Seen in $2 Trillion Gap – Bloomberg
- Euro Chiefs Signal Greek Austerity Softening as Summit Looms – Bloomberg
- Egypt Islamists Claim Presidency as Army Tightens Grip – Reuters
- Greece’s Conservatives Start Coalition Talks – WSJ
- Spanish Yields Surge; Greek Relief Wanes – WSJ

Asian/European Session Summary

The Greek elections yielded the somewhat surprising result of a strong New Democracy victory, with the pro-bailout party garnering enough votes to be in the position to form a coalition government with the other major pro-bailout party, PASOK. Should this materialize, it will keep the anti-bailout party Syriza on the sidelines as the main opposition, but that is only likely to last for so long. Early reports indicate that PASOK will not form a coalition government without the inclusion of Syriza, whose leader Alexis Tsipras has already stated that his party will not be joining New Democracy in a “grand coalition” of sorts.

On a bit of speculation about how this Greek drama will unfold, as a politician, Mr. Tsipras is playing his cards well, as he appears to be in the game for the long haul. That’s to say that if Syriza were to have won yesterday, it would have only been by a razor-thin margin, one that would have likely deteriorated quickly should Greece have needed another bailout under his watch (they will in about a month’s time). On the other hand, with a strong showing, Syriza is now primed to garner majority support in a few months when Greeks return to the polls (assuming New Democracy and PASOK form a government), as the center coalition won’t do anything to materially change Greece’s projected path out of the Euro-zone.

As the Greek election results have been digested, it’s now clear that G20 leaders won’t unveil the nuclear option of flooding the markets with a few hundred billion dollars of liquidity to ensure price stability in the coming days. This was much of the reason markets rallied at the tail end of last week, and without the promise of more easing, much of the gusto behind the US Dollar’s decline has been quelled. This “snap back” to reality after the election has dragged the EURUSD from its highest level in three-weeks at 1.2747 to back under 1.2600 just ahead of the US cash equity open.

Primarily, with no easing on the way, investors have dumped Spanish debt en masse, with the 10-year note yield surging today to as high as 7.285%, after opening at 6.840%. These are the highest yields the Spanish 10-year note has seen since late-April 1997. On the shorter-end of the yield curve, the Spanish 2-year note yield climbed as high as 5.592%, its highest level since late-November 2011.

Taking a look at other European credit, Italian debt is under pressure as well, with 10-year notes yielding 6.057%, at the time this report was written, after rising to 6.173% earlier in the day. The 10-year note yield topped on June 14, when it hit 6.342%. On the shorter-end of the curve, Italian 2-year notes rose by 18.9-basis points to a 4.522% yield.

EURUSD 5-min Chart: June 18, 2012

Charts Created using Marketscope – Prepared by Christopher Vecchio

The Australian and New Zealand Dollars lead on the day, appreciating against the US Dollar by 0.22 percent and 0.34 percent, respectively. The Canadian Dollar is the worst performer, losing 0.42 percent against the US Dollar. After appreciating by as much as 0.88 percent, the EURUSD was trading 0.31 percent lower, at the time this report was written. The USDJPY was slightly firmer, gaining 0.22 percent on Monday thus far.

24-Hour Price Action

Key Levels: 13:45 GMT

Thus far, on Monday, the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is trading higher, at 10096.63 at the time this report was written, after opening at 10060.99 (the index closed at 10072.32 on Friday). The index has traded mostly higher, with the high at 10111.05 and the low at 10060.88.

--- Written by Christopher Vecchio, Currency Analyst at DailyFX.com

 

[Jason Rogers]

US Dollar Sell-off Continues Ahead of FOMC as Spanish Yields Drop

Fundamental Headlines

- Austerity Doesn’t Pay as Debt Markets Ignore Rating Cuts – Bloomberg
- Fiscal-Cliff Concerns Hurting Economy as Companies Hold Back – Bloomberg
- Europe Steps Away from the Edge; Will FOMC Ease Anyway? – DailyFX
- Greek Clash with Germany on Bailout Looms – WSJ
- Greek Parties Continue Coalition Talks – WSJ

Asian/European Session Summary

Market participants are lining up for more cheap credit from the Federal Reserve days before the Federal Open Market Committee announces its monetary policy on Wednesday. Despite mostly disappointing data from across the globe, led by a severely disappointing German ZEW Survey for June, investors have shaken off economic concerns in anticipation of an announcement of another major Fed easing package. The German ZEW Survey showed that German investor confidence plunged by the most since 1998 as the Euro-zone’s debt woes have trimmed economic growth prospects for the coming months. Regardless of the outcome of the debt crisis, the region is indeed headed for a steep recession.

Staying with Europe, the Spanish Treasury was selling shorter-term dated debt this morning, and the results were far from sanguine. €2.4 billion of 12-month bills were sold at an average rate of 5.074%, well-above the 2.985% rate paid on May 14. Similarly, the €639.3 million of 18-month debt sold at 5.107 percent, well-above the 3.302% yield paid in May. Despite these terrible figures – a clear sign that borrowing costs are rising sharply and that a bailout will be necessary soon if relief does not come – Spanish yields have improved across the spectrum: the 10-year note yield dropped by 10.4-basis points to 6.971%, while the 2-year note yield fell to 5.169%.

Largely speaking, the progress made by peripheral debt can be attributed to two hopes: first that the European Union will give leeway to Greece and work more closely for a mutually acceptable political path; and that the Federal Reserve will introduce another large quantitative easing package tomorrow. To dismiss such rumors about Greece’s bailout, it’s important to recognize and consider that Germany holds all of the bargaining chips in these bailout negotiations. In a speech yesterday, German Chancellor Angela Merkel said that there would be “no leeway” on Greece’s commitments, in sharp contrast to the hopeful comments made by an anonymous European Union official. As has been the case this entire crisis, what Germany says goes, and there’s little more to speculate on beyond that.

In regards to the Fed policy meeting tomorrow, Chairman Ben Bernanke will release the Fed’s revised economic projections as well as hold his quarterly press conference, in which the hopes for more quantitative easing in the very near-term should be dashed. Calls have been high for a QE3 package, especially among the Fed’s more dovish members such as Charles Evans (who last week stated that he would support any form of more accommodation), but it’s important to note that the Fed voting bloc has been a bit more conservative lately.

At his Congressional testimony a few weeks ago, Chairman Bernanke made it clear that the Fed would not fill the void created by the US’ irresponsible fiscal policy, and that the Fed could only do so much to achieve its dual mandate of price stability (with inflation near 2%) and maximum employment. Accordingly, we do not expect a full-blown QE3 package; but instead, we expect, at most, that the FOMC will announce an extension of Operation Twist. Similar to how markets reacted in September when Twist was announced, this could lead to a major US Dollar rally.

EURUSD 5-min Chart: June 19, 2012

Charts Created using Marketscope – Prepared by Christopher Vecchio

The commodity currencies are stronger on the day, with the Australian, Canadian, and New Zealand Dollars appreciating by 0.52 percent, 0.54 percent, and 0.59 percent against the US Dollar, respectively. The Euro has made a mid-morning surge against the US Dollar, with the EURUSD now up by 0.53 percent. The British Pound and Japanese Yen have underperformed, gaining 0.19 percent and 0.14 percent each.

24-Hour Price Action

Key Levels: 13:25 GMT

Thus far, on Tuesday, the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is trading lower, at 10061.36 at the time this report was written, after opening at 10094.12. The index has traded mostly lower, with the high at 10096.20 and the low at 10059.53.

--- Written by Christopher Vecchio, Currency Analyst at DailyFX.com

 

[Jason Rogers]

FOMC Will Not Implement QE3, but Other Forms of Easing Possible

It is widely anticipated at the Federal Open Market Committee rate decision today that the Fed Funds rate will be kept unchanged between 0.00 and 0.25 percent. While the rate decision is due at 12:30 EDT / 16:30 GMT, the key parts of today’s Federal Reserve events come a few hours later, when the Fed releases its revised economic projections for the economy at 14:00 EDT / 18:00 GMT, just ahead of Chairman Ben Bernanke’s press conference at 14:15 EDT / 18:15 GMT. With US growth figures slowing alongside a weaker than expected labor market, market participants are widely expecting that some new form of accommodative policy will be introduced.

Certainly, in the inter-meeting period, rumors have floated that the Federal Reserve is considering another round of quantitative easing, but views have ranged as to what type of easing package it may be: an asset purchases targeting mortgage backed securities (ala QE1); an outright bond purchases (ala QE2); a further ‘twist’ of the Fed’s balance sheet (ala Operation Twist announced in September, concluding at the end of this month); or even a sterilized bond purchase program that involves the Fed using one- to four-week reverse repos (thereby avoiding increasing bank excess reserves).

While we believe that there will be some indication of easing, we do not believe it will be on the scale of QE2 – outright bond purchases intended to flatten the yield curve. Instead, we believe it will be an extension of Operation Twist. Currently, the Fed has just under $200 billion in short tenor securities left on its balance sheets, which means if the Fed were to continue Operation Twist at its current rate, the program would end in September. Accordingly, this will buy more time for the Fed to assess the economy and devise new ways to help promote growth.

In terms of what the market is expecting, calls have been high for a QE3 package, especially among the Fed’s more dovish members such as Charles Evans (who last week stated that he would support any form of more accommodation), but it’s important to note that the Fed voting bloc has been a bit more conservative lately (on the whole, most have suggested a “wait-and-see” approach).At his Congressional testimony a few weeks ago, Chairman Bernanke made it clear that the Fed would not fill the void created by the US’ irresponsible fiscal policy, and that the Fed could only do so much to achieve its dual mandate of price stability (with Core inflation near 2%) and maximum employment.

These expectations for QE3 have been strong since the dismal Nonfarm Payrolls report for May that was released on June 1.The Dow Jones FXCM Dollar Index (Ticker: USDOLLAR), after peaking on June 1 at 10312.73, has shed as much as 2.78 percent, falling as low as 10026.23 yesterday, the index’s lowest reading since May 15. In the past five days alone, since rumors emerged that the G20 was considering a globally coordinated intervention to help calm markets should the Greek elections yield an unfavorable result, the Dollar Index has dropped by as much as 1.53 percent. It’s fairly evident that the threat of more easing, an ultimately fiat-dilutive measure, has hurt the US Dollar’s prospects.

How Will the Market React?

Similar to the Operation Twist announcement in September 2011, expectations are high for a major easing package, not just a program that extends the duration of the Fed’s balance sheet. As such, this could result in a letdown, resulting in the selling of high beta currencies and risk-correlated assets in favor of the US Dollar.

AUDUSD 5-min Chart: September 21, 2011

Charts Created using Marketscope – Prepared by Christopher Vecchio

As evident in the chart above, when Federal Reserve Chairman Bernanke announced that Operation Twist was coming, not a full-scale outright bond purchase program, the US Dollar gained traction quickly. The AUDUSD dropped from near 1.0230 ahead of the press conference to as low as 1.0055 by the end of the US cash equity session. Indeed, when expectations are riding high, there’s significant room for a surprise, and in this case, this could result in an explosive move higher by the US Dollar.

Key Pairs

QE3 ON: AUDUSD Bullish, EURUSD Bullish, USDJPY Bearish
QE3 OFF: AUDUSD Bearish, EURUSD Bearish, USDJPY Bullish

--- Written by Christopher Vecchio, Currency Analyst at DailyFX.com

 

[Jason Rogers]

US Dollar Leads Post-FOMC; Japanese Yen Continues to Weaken

Fundamental Headlines

- Greece Faces Downgrade to Emerging-Market Status by MSCI – Bloomberg
- Manufacturing Slump Deepens for Euro-area to China – Bloomberg
- Manufacturing Growth Slows, Labor Market Struggling – Reuters
- Fed Warns of Risk to Economy – WSJ
- Forget EURIBOR and Basis-Swaps; EUREPO Curve Signals Funding Stress – Zero Hedge

Asian/European Session Summary

After all the pomp and circumstance in the weeks following the dismal May Nonfarm Payrolls report released on June 1, it appears that calls for more quantitative easing from the Federal Reserve were nothing more than hot air. Yesterday, as expected, the Fed announced that it would not be implementing a third round of full-blown quantitative easing (outright or unsterilized bond purchases) and instead would seek to extend its Operation Twist program. The program will function through the end of the year and will consist of the Fed selling short tenor securities in order to purchase longer-dated securities, in order to help flatten the yield curve.

Accordingly, just like the original Operation Twist announcement in September 2011, market participants were largely disappointed that another massive liquidity package was not being unveiled (although the reaction this time around was far less severe). The US Dollar has emerged as the top performer in the aftermath of the announcement, with Crude Oil, Gold, and the Japanese Yen – indicators for the QE3 trade – have all declined substantially.

Meanwhile, out of Europe, it’s become clear that we should see a showdown between the new Greek leadership bloc and the European bailout coalition, the European Troika, in the coming weeks given the vastly differing positions each side is taking in regards to the Greek bailout packages. According to reports, Greek leaders have reached consensus on a revised bailout deal they will seek to implement with the Troika’s blessing; but that looks like a pipe dream. German Chancellor Angela Merkel, earlier this week, said that there will be “no leeway” on the agreed upon terms, while Dutch Finance Minister Jan Kees de Jager today said that there will be “no softening of conditions” for Greece, and that room for Greece is “extremely limited.” As has been the case during the entirety of this crisis, especially since September 2011, whatever Northern Europe wants Northern Europe gets, and it is highly unlikely that the positions of Chancellor Merkel and Finance Minister de Jager change dramatically when both sides coming to the negotiating table.

Taking a look at credit, the hope that a ‘bazooka’ will be announced to drive down yields has been a net-positive influence on European debt, with yields falling across both the core and the periphery. Of note, Italian and Spanish debt has improved substantially, with their respective 10-year yields falling to 5.684% and 6.500%. On the shorter-end of the curve, Italian and Spanish debt are the top performers as well, with their respective 2-year yields dropping to 3.683% and 4.424%.

USDJPY 5-min Chart: June 21, 2012

Charts Created using Marketscope – Prepared by Christopher Vecchio

The Japanese Yen is the worst performer on the day, with the USDJPY appreciating by 0.90 percent thus far on Thursday. The New Zealand Dollar’s losses have been stemmed give the strong growth readings and the Kiwi has only depreciated by 0.28 percent against the US Dollar. The US Dollar, as the top performer, has also strengthened substantially against the Euro, with the EURUSD sliding 0.86 percent.

24-Hour Price Action

Key Levels: 16:10 GMT

Thus far, on Thursday, the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is trading higher, at 10139.32 at the time this report was written, after opening at 10063.68. The index has traded mostly higher, with the high at 10041.01 and the low at 10062.74.

--- Written by Christopher Vecchio, Currency Analyst at DailyFX.com