FXCM/DailyFX Signals and Analysis

Commercial Content Analysts
133

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.


[I]Created with Marketscope/Trading Station[/I]

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:


[I]Created with Marketscope/Trading Station[/I]

[B]Relative Safety[/B]

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, [I]How Treasuries Impact Forex Capital Flows[/I] – we saw exactly that; how [B][I]traders in panicking markets will often choose ‘return of capital,’ over ‘return on capital.’[/I][/B]

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.

— [I]Written by James B. Stanley, Trading Instructor at DailyFX.com[/I]

134


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.

— [I]Written by David Song, Currency Analyst at DailyFX.com[/I]

135

The Australian dollar fell against its U.S. cousin on Wednesday thanks to waning consumer confidence figures at home coupled with a global risk-off trading session that saw a surge in demand for the greenback versus higher-yielding currencies amid Greek concerns.

AudUsd.jpg700×525 94 KB

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[B]Fundamental Headlines[/B]

  • 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

[B]European Session Summary[/B]
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.

[I][B]GBPJPY 5-min Chart: May 17, 2012[/B][/I]

[I]Charts Created using Marketscope – Prepared by Christopher Vecchio[/I]

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.

[B]24-Hour Price Action[/B]

[B]Key Levels: 16:30 GMT[/B]

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.

— [I]Written by Christopher Vecchio, Currency Analyst at DailyFX.com[/I]

137

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.

[B]What is Facebook?[/B]

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.

[B]Why Does a Facebook IPO Matter?[/B]

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.


[I]Source: FXCM Marketscope – S&P 500 CFD[/I]

[B]The Market Impact[/B]

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.


[I]Source: FXCM Marketscope[/I]

[B]The Currency Impact[/B]

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.


[I]Source: FXCM Marketscope[/I]

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.


[I]Source: FXCM Marketscope – Dow Jones FXCM Dollar Index[/I]

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.

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.

[B]A Last Word[/B]

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.

— [I]Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com[/I]

139

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.

[B][I]USDCAD 1-minute Chart: May 29, 2012[/I][/B]

[I]Charts Created using Marketscope – Prepared by Christopher Vecchio[/I]

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.

— [I]Written by Christopher Vecchio, Currency Analyst at DailyFX.com[/I]

140

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:

[B]Euro Forecast at $1.19 as Sentiment Remains Extreme[/B]

[I]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.[/I]

Today’s SSI report for all the currency pairs can be found here: Forex Sentiment | Forex Technical Analysis | DailyFX

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.

141

[B][U]THE TAKEAWAY:[/U][/B] [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.

[I][B]USDJPY 1-minute Chart: June 1, 2012[/B][/I]

[I]Chart created using Market Scope – Prepared by Tzu-Wen Chen[/I]

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.

— [I]Written by Tzu-Wen Chen at DailyFX.com[/I]

142

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.

[B]EURUSD Daily Chart[/B]

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.

[B]EURUSD Scalp Chart[/B]

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.

[B]Key Thresholds[/B]

—[I]Written by Michael Boutros, Currency Strategist with DailyFX.com[/I]

143

Lots of traders will be watching Greece this weekend, some for the Greece vs. Russia Euro cup match, and most for the Greek elections on Sunday :slight_smile: . Ahead of the weekend, today’s weekly SSI update shows that retail traders trading EUR/USD have 1.25 long positions for every position short.

SSI is a contrarian indicator and in this case it would indicate there’s possibly more upside to the pair, but one should probably be cautious ahead of the weekend vote.

If things weren’t confusing and uncertain enough, a report released within the past hour says that central banks are preparing coordinated action to provide liquidity after the Greek election if necessary. Here’s an article from CNBC News Headlines

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[B]CAUTION: Uncertain Landscape ahead due to Greek Elections Warrants Reduced Leverage[/B]

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.

[B]THE TAKEAWAY:[/B] 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:

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

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.

[B]Recent Poll Numbers[/B]

[B]Public Issue[/B], 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 [B]31.5% support for Syriza[/B], [B]25.5% for New Democracy[/B], 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. [I]The margin of error was +/-2.8 percentage points.[/I]

[B]Kapa Research SA[/B] surveyed 1012 people for the Athens-based Ta Nea newpaper, in a poll conducted from May 29 to 31. The results estimated [B]26.1% support for New Democracy[/B], [B]23.6% for Syriza[/B] 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%). [I]The overall margin of error is +/-3.1 percentage points.[/I]

[B]A Rass poll[/B] conducted for Eleftheros Typos showed [B]26.5% support for New Democracy[/B], [B]24.2% for Syriza[/B] 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.

[B]New Democracy – Platform Points[/B]

  • 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

[B]Syriza – Platform Points[/B]

  • 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. [I]“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.”[/I]
  • 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

— [B]Written by Christopher Vecchio, Currency Analyst for DailyFX.com[/B]

145

[B]Fundamental Headlines[/B]

  • 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

[B]Asian/European Session Summary[/B]

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.

[I][B]EURUSD 5-min Chart: June 18, 2012[/B][/I]

[I]Charts Created using Marketscope – Prepared by Christopher Vecchio[/I]

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.

[B]24-Hour Price Action[/B]

[B]Key Levels: 13:45 GMT[/B]

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.

— [I]Written by Christopher Vecchio, Currency Analyst at DailyFX.com[/I]

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[B]Fundamental Headlines[/B]

  • 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

[B]Asian/European Session Summary[/B]

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.

[I][B]EURUSD 5-min Chart: June 19, 2012[/B][/I]

[I]Charts Created using Marketscope – Prepared by Christopher Vecchio[/I]

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.

[B]24-Hour Price Action[/B]

[B]Key Levels: 13:25 GMT[/B]

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.

— [I][B]Written by Christopher Vecchio, Currency Analyst at DailyFX.com[/B][/I]

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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.

[B]How Will the Market React?[/B]

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.

[I][B]AUDUSD 5-min Chart: September 21, 2011[/B][/I]

[I]Charts Created using Marketscope – Prepared by Christopher Vecchio[/I]

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.

[B]Key Pairs[/B]

[I]QE3 ON:[/I] AUDUSD Bullish, EURUSD Bullish, USDJPY Bearish
[I]QE3 OFF:[/I] AUDUSD Bearish, EURUSD Bearish, USDJPY Bullish

— [B][I]Written by Christopher Vecchio, Currency Analyst at DailyFX.com[/I][/B]

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Hi Everyone,

All eyes remain on Europe as a key summit will be held in Brussels on Thursday and Friday. Early trading this week shows that the markets are selling into the meeting as the Euro and stocks have fallen.

The euro fell broadly on Monday as concerns about stuttering global growth and low expectations of progress in tackling the debt crisis at a European summit later in the week weighed on demand for riskier currencies. - Reuters

World stocks fell Monday amid concern that a critical European summit later this week will not yield a deal that might restore confidence in the future of the 17-country euro currency. – AP

For contrarian traders, this could present an opportunity if the EU Summit goes better than expected. SSI for the Euro flipped from positive to negative last Friday, which means that more FXCM traders were short the Euro than long going into the weekend.

Joel Kruger, Technical Strategist at DailyFX.com has provided some key prices to watch this week:

EUR/USD: While our overall outlook remains grossly bearish, from here we still see room for short-term upside before a fresh lower top is sought out. Despite the latest pullback, the market still looks constructive in the short-term while above 1.2440. A closer look at the weekly chart still shows the pair putting in yet another weekly higher high and higher low. Nevertheless, a break back above 1.2750 will now be required to accelerate gains. Below 1.2440 negates. –Click here to read the complete technical analysis at DailyFX.com

Jason

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Source: Der Spiegel

As hope wanes for progress to be made at the EU Summit on Thursday and Friday, further losses in the Euro are possible. Here is an excerpt from an article by David Song, Currency Analyst at DailyFX.com:

The Euro touched a low of 1.2458 on Wednesday as German Chancellor Angela Merkel continued to voice her opposition for a Euro bond, and the single currency may face additional headwinds over the remainder of the week should the EU Summit disappoint. Indeed, there are a lot of expectations surrounding the meeting in Brussels as the group pushes for further fiscal integration, but there’s little in the way of seeing a major development this week as the governments operating under the fixed-exchange rate system continue to move in their own interest.

[B]Read the full article at DailyFX.com[/B]

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The US dollar has gotten a boost from risk aversion trading. This trend could continue given current sentiment. Take a look at the table below of the latest readings of SSI (Speculative Sentiment Index).

Click here for the full article on today’s SSI readings at DailyFX.com

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The low expectations in place the past few days surrounding the Euro-zone Summit were tossed aside with ease on Friday, as new measures proposed prompted a massive short-covering rally in the Euro. The AUDUSD and EURUSD have had their two best days all year as a result.

Taking a step back from the charts for a second, we should take into consideration the parameters of the measures disclosed at the Summit in order to determine whether or not today’s near-2 percent move in the Australian Dollar and the Euro are going to be long-lasting, or whether or not we’re seeing some additional volatility due to the end of the month and the quarter.

There are four glaring holes in the Summit’s announcements. Click here to read the complete article at DailyFX.com

[B]EURUSD: Small New Short Position Triggered[/B]

Prices appeared to complete an upward correction with a break of rising channel support on June 21 and have now rebounded to improve risk/reward parameters for re-entry. We will try a small new short position here, initially targeting 1.2442. A stop-loss will be activated on a daily close above 1.2746. Click here to read the complete strategy at DailyFX.com

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US ISM manufacturing for the month of June was just released and the report came in at 49.7. The 50 number is very important since readings above 50 indicate manufacturing is growing and readings below 50 indicate manufacturing is contracting. This is the first contraction in US manufacturing according to the ISM data since July 2009. Here’s a chart:


Source: US ISM since 1950

If you thought this week would be quiet due to the US holiday on Wednesday, think again. We have 3 central bank interest rate decisions and the US Non-Farm Payroll figures due to be released this week. Here’s a summary of what you need to know about each written by Christopher Vecchio of DailyFX.com:

July 03 Tuesday // 04:30 GMT: AUD Reserve Bank of Australia Rate Decision
The RBA is expected to keep its key rate on hold at 3.50 percent on Tuesday, all while neutralizing its tone in its policy statement. While the RBA cut rates from 4.75 percent to 3.50 percent since November 2011, it’s clear that the Australian economy is taking on the rate cuts swimmingly: first quarter GDP was well-beyond expectations; the labor market, fueled by strong demand for commodities, continues to expand rapidly; and the housing sector isn’t looking as weak as it was at the beginning of the year. The Credit Suisse Overnight Index Swaps show that 82.0-bps are being priced out of the AUD over the next 12-months, and that there is only a 15.0 percent chance of a 25.0-bps rate cut at Tuesday’s meeting. The key pairs to watch are AUDJPY and AUDUSD.

July 05 Thursday // 11:00 GMT: GBP Bank of England Rate Decision
Expectations for the BoE to ease further are riding high, with the consensus survey provided by Bloomberg News showing that economists forecast that the Asset Purchase Program target will be raised to £375 billion from £325 billion. All the while, the key interest rate should remain unchanged at 0.50 percent, where it has been on hold since March 2009. Ahead of the Greek elections, the BoE alongside the UK Treasury announced plans for a major liquidity program to help credit flow to small businesses, and it is possible that some more of those plans are disclosed this week. Ultimately, we expect the BoE to cave and ease more, as there are few other viable options at this point in time. The key pairs to watch are GBPJPY and GBPUSD.

July 05 Thursday // 11:45 GMT: EUR European Central Bank Rate Decision
The Euro-zone Summit yielded the results that the ECB has longed to see: political leaders coming together to implement a plan that will stem the crisis. However, any help from the fiscal side of the growth equation looks to be limited, and the ECB is essentially having its hand forced to implement new measures to help control the spread of the crisis from the periphery into the core. With that said, we think that the ECB’s stance has been softening (or leaning towards easing), in the sense that the German economy is starting to experience some of the backlash from the crisis (slower growth, falling price pressures). This month’s ECB rate decision will reveal this: if the ECB cuts rates, it thus believes politicians have done enough to warrant further help from monetary officials; if the ECB does not change its policies, then it is a sign that the ECB believes more needs to be done by political leaders. A rate cut will be supportive of a stronger Euro – just like how the July 2011 rate hike was deconstructive. The key pairs to watch are EURGBP, EURJPY, and EURUSD.

07/06 Friday // 12:30 GMT: USD Change in Nonfarm Payrolls (JUN)
This is the most important event of the week. The US labor market has been expanding at a slower pace than most have anticipated in recent months, at an average rate of +101.3K from March through May after expanding at an average pace of +223.3K from December through February. Since December, though, the Unemployment Rate has fallen from 8.5 percent to as low as 8.1 percent in April, before bouncing up to 8.2 percent in May. Questions remain over how much the unseasonably warm winter has had on the employment picture, and by now, any of these backlashes should have run its course. According to a Bloomberg News survey, jobs growth should come in at a mere +90K, above to +69K from May. Similarly, the immaterial figure will leave the Unemployment Rate unchanged at 8.2 percent in June. A stronger figure will be supportive of a stronger US Dollar while a weak figure will inevitably stoke the QE3 fire. The key pairs to watch are EURUSD and USDJPY.

Source: Bank of England, European Central Bank to Meet; US NFPs on Friday | DailyFX

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Tomorrow is the first Friday of the month which means that NFP is being released, and the forecast average says 90,000 jobs were created during the month of June. 90k isn’t all that impressive, but the ADP release out today showing the private sector added 176k jobs and the drop in jobless claims to 374k is causing some optimism. So much so that Goldman has raised their forecast from 75k to 125k according to a blog post by ZeroHedge. Below is a graph showing NFP job creation/loss over time. The recent increases have been lackluster compared to the size of the losses during the recession.

So how are traders setting up going into tomorrow’s NFP release? EUR/USD positioning is now net long by the largest amount since the pair dropped below 1.25.

The weekly SSI report was released today and David Rodriguez is looking for the euro to target lows of $1.2290 and $1.1875 due to the contrarian signal from SSI. You can see the complete SSI update here: Euro Targets $1.1875 as Retail Crowds buy Post ECB Rate Cut | DailyFX