G20 statement on strengthening financial system

Finance ministers and central bank heads from the G20 nations met in London on Friday and Saturday to discuss the next steps in tackling the worst financial crisis since World War Two. We, the G20 Finance Ministers and Central Bank Governors, reaffirmed our commitment to strengthen the financial system to prevent the build-up of excessive risk and future crises and support sustainable growth. We have made substantial progress in delivering our ambitious plan, which will ensure a robust and comprehensive framework for global regulation and oversight. The Financial Stability Board and the Global Forum on Transparency and Exchange of Information have expanded their mandate and membership. The regulatory bodies have agreed to more stringent capital requirements for risky trading activities, off-balance sheet items, and securitised products; they have developed proposals to address procyclicality, issued important principles on compensation and deposit insurance, and established over thirty supervisory colleges.

But more needs to be done to maintain momentum, make the system more resilient and ensure a level playing field, including the following actions:

1. Clear and identifiable progress in 2009 on delivering the following framework on corporate governance and compensation practices. This will prevent excessive short-term risk taking and mitigate systemic risk, on a globally consistent basis building on and strengthening the application of the FSB principles:

* greater disclosure and transparency of the level and structure of remuneration for those whose actions have a material impact on risk taking;

* global standards on pay structure, including on deferral, effective clawback, the relationship between fixed and variable remuneration, and guaranteed bonuses, to ensure compensation practices are aligned with long-term value creation and financial stability; and,

* corporate governance reforms to ensure appropriate board oversight of compensation and risk, including greater independence and accountability of board compensation committees.

We call on the FSB to report to the Pittsburgh Summit with detailed specific proposals for developing this framework, which could be incorporated into supervisory measures, and closely monitoring its delivery. We also ask the FSB to explore possible approaches for limiting total variable remuneration in relation to risk and long-term performance. G20 governments will also explore ways to address non-adherence with the FSB principles.

2. Stronger regulation and oversight for systemically important firms, including: rapid progress on developing tougher prudential requirements to reflect the higher costs of their failure; a requirement on systemic firms to develop firm-specific contingency plans; the establishment of crisis management groups for major cross-border firms to strengthen international cooperation on resolution; and strengthening the legal framework for crisis intervention and winding down firms.

3. Rapid progress in developing stronger prudential regulation by: requiring banks to hold more and better quality capital once recovery is assured; introducing countercyclical buffers; developing a leverage ratio as an element of the Basel framework; an international set of minimum quantitative standards for high quality liquidity; continuing to improve risk capture in the Basel II framework; accelerating work to develop macro-prudential tools; and exploring the possible role of contingent capital. We call on banks to retain a greater proportion of current profits to build capital, where needed, to support lending.

4. Tackling non-cooperative jurisdictions (NCJs): delivering an effective programme of peer review, capacity building and countermeasures to tackle NCJs that fail to meet regulatory standards, AML/CFT and tax information exchange standards; standing ready to use countermeasures against tax havens from March 2010; ensuring developing countries benefit from the new tax transparency, possibly including through a multilateral instrument; and calling on the FSB to report on criteria and compliance against regulatory standards by November 2009.

5. Consistent and coordinated implementation of international standards, including Basel II, to prevent the emergence of new risks and regulatory arbitrage, particularly with regard to Central Counterparties for credit derivatives, oversight of credit ratings agencies and hedge funds, and quantitative retention requirements for securitisations.

6. Convergence towards a single set of high-quality, global, independent accounting standards on financial instruments, loan-loss provisioning, off-balance sheet exposures and the impairment and valuation of financial assets. Within the framework of the independent accounting standard setting process, the IASB is encouraged to take account of the Basel Committee guiding principles on lAS 39 and the report of the Financial Crisis Advisory Group; and its constitutional review should improve the involvement of stakeholders, including prudential regulators and the emerging markets.

Fed must not leave rates too low: Hoenig

The U.S. central bank must resist popular pressure to keep interest rates too low as the economy recovers, according to a top Federal Reserve official. Kansas City Federal Reserve President Thomas Hoenig, in remarks at a private meeting last month that were released on Saturday, also said that top U.S. banks were still too highly leveraged, and would evade demands to raise more capital. "As we become more confident that we are at the bottom of the recession and are moving into recovery, we must become more resolute in systematically reducing our balance sheet and raising interest rates," Hoenig told the annual meeting of the Kansas Bankers Association on August 6. The Fed has cut interest rates to almost zero and doubled its balance sheet to around $2 trillion to keep credit markets from seizing in panic after investment bank Lehman Brothers failed last September amid massive losses on mortgage debt. "Moving from zero to one percent, for example, is not a tight policy. I don't know what the neutral rate is, but I am certain it isn't zero," Hoenig said. "Neutral" refers to a level of interest rates that neither stimulates nor hinders growth. The Fed reiterated at its August 12 policy meeting that the weak economy would warrant exceptionally low interest rates for an extended period. Hoenig, who is regarded as one of the Fed's most hawkish, or anti-inflation officials, will be a voting member of its policy-setting committee next year. "We are carrying more debt than we have carried in most of our history, and the pressure to keep rates low is only going to increase as the economy begins to recover," he said. Hoenig said mixed signals from the economy indicate that the bottom of the recession had been reached, but predicted only a gradual recovery as businesses and households work off the consequences of the collapse of the U.S. housing market. "In this environment, one of the Federal Reserve's major challenges will be how to pull back its highly accommodative monetary policy without undermining the recovery and without igniting inflationary expectations," he said. Hoenig's speech was on the implications of leverage and debt. He said that the country's 20 largest banks had far less equity capital than their smaller rivals, controlling $12 trillion in assets but supported by just 3.5 percent of equity capital versus 6 percent for the next 20 largest firms. "Some proposals being offered would require large institutions to hold more than this level of capital," he said, referring to the 6 percent threshold. "I would suggest such proposals are wishful thinking and will not be achieved."

GBPUSD: Breaks Downside Losses, Recovers Higher.

GBPUSD- The shooting star triggered declines off the 1.7041 level came to a halt the past week putting the pair on a positive higher close at 1.6319. Though still biased to the downside as it is still trading below its broken MT rising trendline, with the mentioned recovery gains, GBP should build on that strength further with the initial target residing at the 1.6542 level, its Aug 24’09 high ahead of its Aug 21’09 high at 1.6622. Above there will put the GBP back into its broken trendline and clear the way for more upside gains towards the 1.6716 level, marking its Aug 10’09 high and then its YTD high standing at 1.7041 where a turn above there will resume its medium term uptrend now on hold. However, if the recovery now seen fades, reversal lower will follow towards the 1.6111 level, its Sept 01’09 low with a break of the latter pushing the pair further lower towards the 1.5982 level, which marks its July 08’09 low and next the 1.5798 level, its Jun 07’09 low. Overall, even though declines triggered off the 1.7041 level remains to the downside, that weakness is now being challenged by a recovery higher.

Directional Bias:

Nearer Term -Bearish
Short Term –Mixed
Medium Term –Bullish

Performance in %:

Past Week:: +0.76%
past Month: -2.55%
Past Quarter: +14.74%
Year To Date:: +12.03%

Weekly Range:

High -1.6411
Low -1.6111

EURUSD: Continues To Hold Above Its MT Rising Trendline

EURUSD- With declines to as low as 1.4176 reversed and a neutral candle printed the past week, EUR continues to maintain above its medium term rising trendline initiated at the 1.2456 level. This leaves the pair biased to the upside towards its YTD high sited at the 1.4446 level where a decisive penetration will put it on the path to further upside gains towards the 1.4719 level, its Dec 18’08 high and possibly higher targeting the 1.4875 level, representing its Sept 21’09 high. On the other hand, downside targets are located at the 1.4176 level, its Sept 01’09 low and the 1.4088 level, representing rising trendline. Below there though not expected at the current price levels could drive the pair further lower towards the 1.3747 level, its Jun 16’09 low. On the whole, we maintain that while the pair holds above its rising trendline, outlook for further upside gain remains

Directional Bias:

Nearer Term –Mixed

Short Term – Bullish

Medium Term –Bullish

Performance in %:

Past Week: +0.05%

Past Month: +0.55%

Past Quarter: +5.89%

Year To Date: +2.32%

Weekly Range:

High -1.4378

Low -1.4176

MPC expected to keep rates on hold

Bank of England policymakers are expected to pause for breath when they meet this week after the shock decision last month to pump an extra £50 billion into the economy. The nine-strong Monetary Policy Committee made an unexpected move to increase efforts under its Quantitative Easing (QE) programme to £175 billion in August. But it was even more of a surprise when minutes of the meeting revealed that Bank Governor Mervyn King had been out-voted in calling for an even greater money supply boost. It emerged that Mr King and two MPC colleagues - David Miles and Tim Besley - had preferred a £75 billion expansion in August, taking the total to £200 billion. According to the minutes, they warned that insufficient action would cause inflation to remain below target for a sustained period of time and might harm public confidence in the recovery, causing it to falter. But the majority of committee members were concerned that too big an increase could have economic implications that were uncertain and difficult to rectify. Recent encouraging indicators for the UK economy added to caution over the need for greater stimulus. Economists believe that it is unlikely the MPC will step-in with more money for the economy so soon after increasing the QE limit, while it is also forecasted to keep interest rates at their historic low of 0.5% for some time. The MPC has been keen to stress that the effects of QE will take time to filter through, which adds to the theory that they will likely sit back and wait before taking further action. But Howard Archer, economist at IHS Global Insight, said more QE cannot be ruled out.

Dollar Falls on Bets Investors Seek Higher Yields as G-20 Meets

The dollar dropped against most of its major counterparts on speculation investors betting on a quick recovery in the global economy bought higher-yielding assets as Group of 20 finance ministers convened. The Brazilian real and South African rand posted the biggest advances against the greenback among the most-trade currencies this week as U.S. employers slowed the rate of job cuts in August. Treasury Secretary Timothy Geithner reaffirmed his commitment to supporting the economy before conferring with G-20 officials in London. The U.S. government is scheduled to sell a combined $70 billion in notes and bonds next week. “The policy backdrop is exceedingly supportive,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “All the positive comments from Geithner and the G-20 authorities over the weekend will set us up for a nice bounce in risk.” The dollar fell 0.6 percent to 93.01 yen yesterday, from 93.60 on Aug. 28. The U.S. currency was little changed at $1.4311 per euro. The real climbed 2.2 percent to 1.8401 versus the U.S. currency, and the rand advanced 2.1 percent to 7.5908. U.K. Chancellor of the Exchequer Alistair Darling and German Finance Minister Peer Steinbrueck were among the G-20 officials saying yesterday it’s premature to unwind the emergency measures put in place to fight the crisis. The euro erased its gain versus the dollar on Sept. 3 as European Central Bank President Jean-Claude Trichet said the economic recovery in his region will be “rather uneven” after holding the target lending rate at a record low of 1 percent.

‘Extremely Dovish’

“Trichet sounded extremely dovish,” a team of Commerzbank AG analysts including Ulrich Leuchtmann in Frankfurt said in a report yesterday. The Federal Reserve signaled in minutes of its August meeting published on Sept. 2 that it’s trying to prepare investors for an end to some of its asset purchases as the U.S. economy shows signs it’s beginning to recover from its worst slump since the Great Depression. Geithner told reporters the same day in Washington that it’s still “too early” for G-20 nations to implement exit strategies. Finance ministers meet this weekend in London, while the Bank of England and the Reserve Bank of New Zealand decide on monetary policy next week. Mexico’s peso declined 0.9 percent to 13.3716 against the dollar this week on speculation the government will fail to get congressional support to raise taxes as it seeks to rein in next year’s budget deficit. The peso slumped 3.1 percent last week.

Mexico’s Budget

President Felipe Calderon, who is preparing to send Congress the budget proposals on Sept. 8, said last month that he may seek a combination of debt, higher taxes and lower spending to stem the swelling budget deficit. Standard & Poor’s has warned the nation must create new sources of revenue to offset declining oil income if it’s to avoid a downgrade of its debt rating before the end of the year. S&P rates Mexico’s foreign debt BBB+, the third-lowest investment-grade rating. The euro rose briefly yesterday after the Labor Department reported at 8:30 a.m. in Washington that job cuts slowed to 216,000 in August. The currency approached the lowest level this week about 30 minutes after the report and resumed gaining from about 11:40 a.m. to its intraday high of $1.4327. “There’s too much uncertainty about how this will play out,” said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. “From a recession point of view, we still have a long way to go. Just look at the job losses. It’s not like any recovery we saw since 1980.”

U.S. Jobless Rate

The unemployment rate climbed to a 26-year high of 9.7 percent, and the Labor Department revised its estimate for job cuts in July to 276,000, from 247,000 previously. Canada’s dollarthree-month loans in dollars fell this week, declining for a 13th straight day yesterday to 0.31 percent, according to the British Bankers’ Association. The corresponding rate for funds in yen was higher at 0.38 percent. strengthened 0.4 percent to C$1.0871 per U.S. dollar as the government reported employment rose last month by 27,100, compared with economists’ median forecast of a drop of 15,000. The unemployment rate increased to 8.7 percent. The dollar fell against the rand for a third week in its longest stretch of declines since May. The three-month Johannesburg interbank agreed rate is more that 20 times higher than its U.S. counterpart at 7.1 percent. The London interbank offered rate on

‘New Carry Currency’

“Judging by Libor rates, the dollar’s the new carry currency,” said Jessica Hoversen, a fixed-income and foreign- exchange analyst in Chicago at MF Global Ltd., a brokerage firm. “It’s the cheapest.” In the carry trade, investors borrow in nations where interest rates are low and buy assets where returns are higher, profiting from the difference. The Australian dollar climbed 1.2 percent this week to 85.15 U.S. cents and advanced 0.6 percent to 79.21 yen. The South Pacific nation’s three-month bank-bill swap rate is 3.42 percent. Gains in U.S. Treasuries were limited this week as the government prepared to sell $38 billion of 3-year notes, $20 billion in 10-year securities and $12 billion in 30-year bonds over three straight days beginning Sept. 8. The yield on the 10- year note fell less than 0.01 percentage point to 3.44 percent.

Markets to stay wary on stimulus after G20 pledge

Financial markets are likely to remain buffeted by uncertainty over government policy despite an unprecedented pledge by the world's top finance officials to cooperate as the global economy emerges from recession. At a meeting in London at the weekend, finance ministers and central bankers from the Group of 20 nations said fiscal and monetary policy would stay expansionary as long as needed to ensure recovery. That assurance could support fresh risk-taking in the markets this week, providing a moderate boost to global equities and prompting sales of the U.S. dollar in favor of higher-yielding currencies such as the Australian dollar. For the first time, the G20 officials said there should be some coordination of policies to avoid destabilizing economies when governments eventually start winding down costly stimulus schemes launched during the crisis. This was important for long-term investors, who fear volatility in the currency and interest rate markets if some cash-strapped countries cut back fiscal spending and hike interest rates much sooner than others. But the G20 did not explicitly address big issues blamed for imbalances in the global economy, such as the value of China's yuan. That raised questions over how much political will the group can really muster to coordinate policies. And in some ways, the G20 seemed less united than it did when it met at the height of the crisis in April. While the April meeting produced a broad consensus on reform to financial regulation, the latest meeting bickered inconclusively over issues such as curbing excessive pay packages for bankers. If the G20 has trouble setting common rules to regulate the finance industry, it may find it impossible to agree on sharing the fiscal burden of engineering a sustained economic recovery. "The spirit of coordination is confidence-boosting, but in reality withdrawing fiscal stimulus will be difficult to coordinate," said Lena Komileva, head of market economics for major developed economies at money broker Tullett Prebon. "Investors still fear an uncoordinated exit could create stealth competition and contribute to increased volatility in government bond yields. It may be the fiscal equivalent of competitive currency devaluation."

GROWTH

As the G20 met, there were fresh signs of improvement in the economic outlook. Documents obtained by Reuters showed the International Monetary Fund had revised up its forecast for the world economy this year and next. It now forecasts a contraction of 1.3 percent in 2009, a bit better than its April forecast of a 1.4 percent shrinkage, and growth of 2.9 percent in 2010, revised up from 2.5 percent previously. But the strengthening outlook carries its own risks; facing less pressure to cooperate urgently to avoid a global economic collapse, G20 nations may focus more on narrow national interests as they plot "exit strategies" from stimulus steps. That may explain why G20 policymakers said almost nothing specific at the weekend about the "cooperative and coordinated exit strategies" which they promised. Instead, they merely said they would work with the International Monetary Fund and the Financial Stability Board, an international forum, to develop such strategies. Asked if coordination meant central banks might hike interest rates in unison, just as they cut together during the crisis, British finance minister Alistair Darling simply said countries did not have to do things on the same day, but did have to work together to ensure they did not hamper recovery. British Prime Minister Gordon Brown said sustaining the economic recovery would mean "avoiding unsustainable imbalances between countries," such as trade imbalances. But once again, the G20 did not make any concrete statement on adjusting the exchange rates of the dollar and the yuan, which are among the biggest factors affecting trade flows. China, with the sustainability of its recovery still uncertain, is not expected to let the yuan appreciate much any time soon.

UNCERTAINTY

Analysts believe uncertainty about how the global recovery will be managed may partly explain the surge of the spot gold price to near record highs over the past two months. During the same period the CBOE Volatility Index, a measure of investors' willingness to take on risk, has stopped trending lower after sliding almost continuously since early this year as financial markets recovered. The index is roughly where it was just before Lehman Brothers collapsed last September, but remains well above levels that prevailed in the years before the credit crisis began developing in 2007. Sarah Hewin, senior economist at Standard Chartered Bank, said some investors were hoping for clear information from the G20 meeting about how exit strategies would be carried out, and would be disappointed that there was none. "We should see more good news on the economy in the near term and those economies that have yet to move into positive growth, such as the United States and Britain, should see positive growth in Q3," she said. "But the issue is that some of the stimulus is going to run out, so the markets are likely to continue fluctuating between optimism and caution."

G-20 Urged by IMF, Europe to Coordinate When Reversing Stimulus

Group of 20 nations were urged by the International Monetary Fund and European governments to coordinate when they unwind emergency measures introduced to fight the global financial crisis. As G-20 economic policy makers prepare to meet in London on Sept. 4-5, German Finance Minister Peer Steinbrueck told his counterparts in a letter that failure to align so-called exit strategies risked “distortions of competition.” John Lipsky, the IMF’s No. 2 official, said in an interview that a lack of cooperation “could create strains and costs for other countries.”

The concern is that having committed more than $2 trillion in fiscal packages and aiding banks such as Citigroup Inc. and Royal Bank of Scotland Group Plc, failure by the G-20 to move in lockstep when reversing the assistance could fan inflation, lead to uneven debt burdens or distort markets. “These kinds of policies will be more effective if they’re unwound in a coordinated way rather than an uncoordinated way,” Lipsky, the IMF’s First Deputy Managing Director, said in Washington. “In many areas such as bank guarantees or other specific governmental support for markets, often these have spillover effects.”

G-20 finance ministers and central bankers are convening this week to shape an agenda for a Sept. 24-25 summit of their leaders in Pittsburgh amid signs the world economy is pulling out of its worst recession since World War II. Business activity in the U.S. improved in August more than forecast, the Institute for Supply Management-Chicago Inc.’s business barometer showed today.

‘Essential’ to Coordinate
“There cannot be a one-size-fits-all solution,” Steinbrueck said in the letter, which was seen by Bloomberg News. “However, it is essential that we coordinate our action internationally.” French Finance Minister Christine Lagarde cautioned against a premature withdrawal of support. “It would be irresponsible not to discuss exit strategies, but we’re not out of the crisis,” she told reporters in Paris today. While it’s too early to begin implementing exit plans, the 186-member IMF, which provided emergency loans to countries from Iceland to Hungary during the crisis, is devising a road map for how economies can reverse their stimulus efforts, Lipsky said.
Governments must also unite when introducing new financial rules to prevent future turbulence, U.K. Chancellor of the Exchequer Alistair Darling said today. “In this global world our markets are interdependent, and without strong international financial regulation, one country’s financial system can be played off against another,” Darling wrote in the Guardian newspaper.

Market Contribution
In his letter, Steinbrueck also said he wants to discuss at the G-20 how financial markets can be brought to make a “greater, internationally coordinated contribution” to financing the costs of coping with the economic crisis. Adair Turner, the chairman of the U.K. Financial Services Authority, last week proposed a “Tobin tax” on financial transactions. Lagarde said she backed taxing finance so long as it didn’t create distortions. “I’m all in favor of better regulation and of a financial or fiscal levy on all financial instruments, but not for some, detrimental to others,” Lagarde said. Central banks including the U.S. Federal Reserve and the Bank of England are already pursuing divergent policies. The U.K. central bank this month voted to increase its bond purchase program by 50 billion pounds ($81 billion) to 175 pounds, while the Fed is letting its Treasury-buying expire. The Bank of Israel unexpectedly increased interest rates on Aug. 24, the same day that Hungary’s central bank cut its benchmark. “Differentiation between countries is likely to become a bigger theme again for markets,” Joachim Fels, co-chief global economist at Morgan Stanley in London, said in an Aug. 26 report. The G-20 members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., the U.K. and the European Union.

Oil drops below $70

Weaker stocks and a stronger dollar push crude futures down more than 4%.

Oil fell more than 4% to below $70 a barrel on Monday as a drop in China's key stock index dented optimism about the pace of economic recovery and the U.S. dollar strengthened. China's key stock index dived 6.74% on Monday to a three-month closing low and recorded its second-biggest monthly loss in 15 years. European equities edged down and U.S. shares opened lower. "It's negative sentiment given the very weak Chinese market," said Eugen Weinberg, analyst at Commerzbank. "This is definitely bad news for the commodities sector, especially oil and metals."

U.S. crude for October fell $3.12 to $69.62 a barrel, having fallen as low as $69.46 in intraday trade.
"The sharp drop in Chinese markets is causing concerns and is inevitably making some investors rethink on the risks to China's economy and question their assumptions on the country's growth rate and energy consumption," said Daniel Liu, a commodities strategist at MG Global Singapore. Jitters about the Chinese economy, the world's second-largest oil consumer, also weighed on other Asian stock markets.
The dollar was up slightly against a basket of currencies, reducing the appeal to some investors of oil and other dollar-denominated commodities.

The Organization of the Petroleum Exporting Countries meets to review output on Sept. 9 in Vienna. Several ministers and officials from the group have said it is likely to leave output targets unchanged. Even though OPEC agreed 4.2 million barrels per day of supply curbs late last year and has kept output targets steady so far in 2009, actual production has been rising in recent months according to industry surveys. In a further sign of that trend, Abu Dhabi, the main producer in OPEC member the United Arab Emirates, will lift supply to Asia in October, the state oil firm said on Saturday. Despite the indications of higher supply from some in OPEC, oil has rallied from a low of $32.40 in December 2008, which was the weakest in nearly five years, to a 2009 high of $75 a barrel last week.

Irrational Variation Of Taylor Rule May Affect Inflation, An Opportunity For Gold?

Crude oil price continues to trade below 74 in European morning as stock markets weaken. In the UK, the FTSE 100 Index slides -0.2% to 4887 while Germany's DAX and France's CAC 40 lose around -0.1% to 5512 and 3648. In Asia, stocks also fell amid worries about credit tightening in China.

Currently trading at 947, the benchmark contract for gold maintains its sideways trading. The yellow metal has been moving below 1000 since February and the trading range has narrowed from 850-990 to 900-980 in recent months. Volatility has obviously reduced and the phenomenon is even more apparent in non-USD terms.

Rise in risk appetite and diminished inflation expectation are the main reasons for the recent boring gold price movement. As global economic outlook has turned brighter, investors tend to allocate more capitals to higher-yield assets such as stocks. Their interests in gold appear to have slowed down.

In 1Q09, the market talked about hyper-inflation which is expected to be brought about by the massive monetary and fiscal stimulus worldwide. However, very few people seem to care about it after policymakers including Fed Chairman Bernanke reinforced that inflationary pressure remained subdued.

For many years, analysts and policymakers have been using 'Taylor Rule' as a gauge for interest rate decisions. John Taylor, the economist who developed the well-known rule, said that too much variation in the rule may affect interest rate policy and the inflation outlook.

Taylor said that, using the original formula (interest rate = 1.5* inflation rate + 0.5* GDP gap + 1), the US inflation rate is about 2% and the GDP gap is about -8% while the interest rate should be 0%. This is similar to current Fed funds rate of 0-0.25%. Should inflation rise and GDP gap narrows, the Fed will increase interest rate early next year.

However, Fed Governor Laurence Meyer believed the rule should be amended from '0.5 * GDP gap' to '1*GDP gap' which implies an interest rate of -4%. In this case, the Fed will not raise its policy rate until end of 2010. Moreover, as policy rate is non-negative, the Fed may want to adopt additional stimulus measures in order to help 'revive' the economy.

If the Fed really underestimates economic outlook and keeps its policy rate too low for too long, this will affect inflation. That is, future inflation will be much higher than what is currently anticipated.

Trade Idea: GBP/USD - Hold Short Entered at 1.6440

GBP/USD - 1.6383

Most recent candlesticks pattern : N/A
Trend : Near term down

Tenkan-Sen level : 1.6432
Kijun-Sen level : 1.6482
Ichimoku cloud top : 1.6556
Ichimoku cloud bottom : 1.6466

Original strategy :

Sold at 1.6440, Target: 1.6290, Stop: 1.6500

New strategy :

Hold short entered at 1.6440, Target: 1.6290, Stop: 1.6455

Despite intra-day anticipated rebound back to the Tenkan-Sen, the British pound did meet renewed selling pressure there and has retreated again, bearishness remains for the decline from 1.7044 top to resume for a retest of 1.6275 support, break there would bring a stronger correction of recent up move to 1.6241 (50% projection of 1.7044 to 1.6275 measuring from 1.6225, however, reckon 1.6150 (61.8% projection level) would hold from here.

In view of the above analysis, we are holding on to our short position entered at 1.6440 but one must book profit on such a move. Only above the Kijun-Sen (now at 1.6482) would prolong choppy trading and rebound to the Ichimoku cloud (now at 1.6556) cannot be ruled out but resistance at 1.6625 should remain intact.

Obama renominates Bernanke for Fed chief

President Barack Obama renominated Ben Bernanke on Tuesday to be the head of the U.S. central bank. Here is the text of the president's remarks as prepared for delivery at 9 a.m. EDT (1300 GMT):

"Good morning everyone. I apologize for interrupting the relaxing I told you all to do, but I have an important announcement to make concerning the Federal Reserve.

"The man next to me, Ben Bernanke, has led the Fed through the one of the worst financial crises that this nation and this world have ever faced. As an expert on the causes of the Great Depression, I'm sure Ben never imagined that he would be part of a team responsible for preventing another. But because of his background, his temperament, his courage, and his creativity, that's exactly what he has helped to achieve. And that is why I am re-appointing him to another term as Chairman of the Federal Reserve.

"Ben approached a financial system on the verge of collapse with calm and wisdom; with bold action and outside-the-box thinking that has helped put the brakes on our economic freefall. Almost none of the decisions he or any of us made have been easy. The actions we have taken to stabilize our financial system, repair our credit markets, restructure our auto industry, and pass a recovery package have all been steps of necessity, not choice. They have faced plenty of critics, some of whom argued that we should stay the course or do nothing at all. But taken together, this "bold, persistent experimentation" has brought our economy back from the brink. They are steps that are working. Our recovery plan has put tax cuts in people's pockets, extended health care and unemployment insurance to those who have borne the brunt of this recession, and is continuing to save and create jobs that otherwise would have been lost. Our auto industry is showing signs of life. Business investment is showing signs of stabilizing. Our housing market and credit markets have been saved from collapse.

"Of course, as I have said before, we are a long way away from a completely healthy financial system and a full economic recovery. And I will not let up until those Americans who are looking for jobs can find them; until qualified businesses, large and small, who need capital to grow can find loans at a rate they can afford; and until all responsible mortgage-holders can stay in their homes. That is why we need Ben to continue the work he's doing, and that is why I've said that we cannot go back to an economy based on overleveraged banks, inflated profits, and maxed-out credit cards.

"For even as we have taken steps to rescue our financial system and our economy, we must now work to rebuild a new foundation for growth and prosperity. We must build an economy that works for every American, and one that leads the world in innovation, investments, and exports.

"Part of that foundation has to be a financial regulatory system that ensures we never face a crisis like this again. We have already seen how lax enforcement and weak regulation can lead to enormous wealth for a few and enormous pain for everyone else. And that's why even though there is some resistance on Wall Street from those who prefer things the way they are, we will pass the reforms necessary to protect consumers, investors, and the entire financial system. And we will continue to maintain a strong and independent Federal Reserve.

"We will also keep working towards the reform of a health insurance system whose costs and discriminatory practices are bankrupting our families, our businesses, and our government. We will continue to build a clean energy economy that creates the jobs and industries of the future within our borders. And we will give our children and our workers the skills and training they need to compete for these jobs in the 21st century.

"Much like the decisions we've made so far, the steps we take to build this new foundation will not be easy. Change never is. As Ben and I both know, it comes with debate and disagreement and resistance from those who prefer the status quo. And that's ok, because that's how democracy is supposed to work. But no matter how difficult change is, we will pursue it relentlessly because it is absolutely necessary to lift this country up and create an economy that leads to good jobs, broad growth, and a future our children can count on. That is what we are here to do, and that's what we will continue to do in the months ahead. I want to congratulate Ben on the work he's done this far, and wish him continued success in the hard work ahead. Thank you."

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Markets Will Continue To Rise

If economic data along with the Fed can be used as a guide, there was no reason to see global stock markets retreat to any appreciable degree going forward and to expect that the market rally will continue over the third and fourth quarters. However, there’s another important reason which has me even more convinced the rally will continue.

For improving markets really comes down to an exercise in logic, so follow my thinking. As I’m sure you’re aware of, we’re in the middle of the largest fiscal and monetary expansion in history, one that is globally coordinated. These policies are designed to do one thing-reflate asset values in order to counter the dangerous effects of deflation.

Now, one of the big concerns among some economists is that policymakers will be too slow to withdraw all this liquidity once the global economy shows signs it can make significant improvements, as it’s starting to do at this time. The reason for this is because monetary policy that’s overly expansionary has the potential to create asset bubbles. Indeed, it’s generally accepted by most major economists, including Nouriel Roubini, that an important factor in the development of the housing bubble was the Fed keeping rates too low for too long after the 2001 recession and then raising them only gradually (in 25 basis point increments) once they did begin to tighten policy in 2004. At this time, because those policies have been implemented in conjunction with fiscal stimuli that risk is likely to be even more pronounced.

But what we also saw at the Federal Reserve’s annual retreat in Jackson Hole over the weekend is that policymakers are of the belief that the global economy is far too fragile at this time to even begin thinking about tightening policy, with the Financial Times reporting that “in private and in public, most officials indicated they believed that rates could be maintained at ultra-low levels for a considerable time without generating excess inflation, in spite of better economic data and a return of “animal spirits” in financial markets. “

ECB President Trichet, who warned against “a return to complacency,” went so far as to say that talk of economic conditions returning to normal made him “a little bit uneasy.”

“Because we have some green shoots here and there, we are already saying: ‘Well, after all, we are close to back to normal,’ he said. “We know that we have an enormous amount of work to do and we should be as active as possible,” a strong implication that ECB monetary policy will remain accommodative for an extended period.

Harvard economics professor Martin Feldstein, the first prominent voice to call for rate cuts at the 2007 meeting, thought it would be possible to have “two years or more of very low interest rates” without risk of excess inflation, given the spare capacity in the economy.

The most recent FOMC statement reiterated that policymakers continue “to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.“

So, here’s where the exercise in logic comes in; if expansionary monetary policy is known to have the potential to create asset bubbles, and if we have a historic amount of liquidity being provided on a global scale, and if, as every indication shows, policymakers intend on keeping policy expansionary for an extended period of time, doesn’t it then follow that markets pretty much have to go up absent a catastrophe?

We’ve all recently learned just how dangerous bubbles can be, but what we as traders should also have learned is that these bubbles take a long time to grow and that they can persist for many months and sometimes even years. And shouldn’t the goal as traders be to ride that bubble (if one is even occurring now) as best we can with trades in currencies, futures, options etc that are liquid and therefore easy to close out of?

So, that’s why I continue to believe that equity markets and commodities will continue to rise over the rest of this year and probably well into 2010. And with that occurring the dollar will depreciate against the better-yielding currencies (Aussie especially) as those continue their months-long appreciation against the yen.

Forex Market News – Dollar makes come back against majors after Fridays lows

US Dollar:
A recovery in stock markets late last week saw the dollar slip against the euro and pound as safe haven currencies rallied back from their recent highs.
This dollar moves seems to have come on the back of comments by the Federal reserve Chairman Ben Bernanke that the economy was leveling out. The greenback has now taken nearly town cents off the pound after its lows of $1.6623 on Friday, to rally to $1.6367 this morning. There was a smaller recovery for the dollar against its European counterpart, with nearly one cent taken back since Friday, for EUR/USD to trade at $1.4290. Currency dealers will keep paying close attention to equity markets in Europe and the US later in the day in the absence of other significant trading cues such as economic data.

Sterling:
Sterling closed out the week on a rallying market last week as once again we saw the pound rise in line with stock markets. Cable hit $1.6623 on Friday as risk appetite grew in the markets, pushing up the higher yielding currencies. The FTSE 100 index, which has soared almost 40% since its low point in March, closed at a 10-month high of 4,850 last week. Some fund managers believe that it could break through the psychological important 5,000 level this week. However, it was the turn of the euro to push itself above the pound in the race off against the dollar, with both currencies usually doing well against the buck when risk returns to the markets.
The pound dropped over a cent against the single currency to fall below the 1.15 level, only dragging itself off that floor this morning to pick up slightly to 1.1524. This morning we have seen some weakness for cable as comments from the US fed Chairman filter through the markets, where he spoke of the economy was leveling out. This has seen a fight back for the buck as it took nearly two cents off the pound. Forthcoming UK figures may show that the economy performed slightly better than initially expected in the second quarter. Some economists believe revised figures due on Friday will show it shrinking by 0.7%, rather than the 0.8% that was originally estimated.

Euro:
The euro rose again today as risk appetite continued in Asian trade, following on from last weeks bull run in the equity markets, increasing buying of risk sensitive currencies with the euro being one of them. This saw the single currency take nearly two cents off the dollar from Friday to hit $1.4373. A slight fight back from the dollar has now been seen as comments from the Fed chairman boosted the dollar. The euro did fair better than its UK counterpart in the run off for the rally in less risk sensitive currencies. We saw a gain for the euro against sterling of 1.5% for EUR/GBP to hit 0.8700.

General:
The Aussie and Kiwi dollars both took full advantage of a strong rally in the equity markets to make significant gains against both the pound and US dollar. Sterling/Aussie has now fallen down to AUS$1.9631, nearly equaling its low point two weeks ago where it reached AUS$1.9585.

Weekly Technical Strategist

EURUSD: Switches Focus To The 1.4446 Level

EURUSD- With a reversal of most of its losses off the 1.4444 level, its Aug 03’09 high seen the past week, risk for more upside gains targeting that level continues to be envisaged. Beyond that level will put the pair in position to head further higher towards the 1.4719 level, its Dec 18’08 high and possibly higher towards the 1.4875 level, representing its Sept 21’09 high. Both its weekly and daily RSI have turned higher suggesting further upside strength. Immediate support lies at the 1.4326 level, its Aug 13’09 high ahead of the 1.4044 level, marking its Aug 17’09 low with a turn below there creating further downside pressure towards its MT rising trend line at 1.3968. Decisively invalidating that level will mean additional losses towards the 1.3747 level, its Jun 16’09 low. On the whole, having reversed almost all of its declines off the 1.4446 level, EUR now looks to target further higher level prices and possibly resume its MT uptrend.

Directional Bias:
Nearer Term Bullish
Short Term Bullish
Medium Term Bullish

Performance in %:
Past Week: +0.14%
Past Month: -0.83%
Past Quarter: +5.89%
Year To Date: +1.65%

Weekly Range:
High -1.4776
Low -1.4207

Detailed Forex Trade Instructions on Eur/Usd

We just had a good week trading the Eur/Usd and I think that we are headed for some more great moves coming this week and beyond. Forex trading slows down in the month of August and we should see some more volume in September.
On Monday we have key levels that the Eur/Usd will be challenging, and if we break the resistance levels we may see some big moves.

For resistance levels we1.4377, 1.4448 and 1.4721 both of those levels are key and if we see them broken we could see serious trend momentum. The level at 1.4721 is the pairs high price of Dec 7, 2008

The Support levels are 1.4274, 1.4200 and 1.4050

The current trend is in favor of the Euro so we will be looking for that trend to continue but we will be ready to adapt if the pair gets stopped by key resistance levels.

Trade Setup and Rules:

First we will be watching the first resistance level of .14377 and if that level gets taken out the target is 1.448. So the plan is to enter long somewhere around 1.4385 and put a stop at 1.4356 which is 31 pips. Make sure that you are only risking %2 of you account value. The target level is 1.4448 which is 63 pips. That gives us a 2 to 1 risk to reward ratio which is important to maintain in your trading to help increase profitability long term.

IF the pair bounces of the 1.4377 level look at the support level of 1.4200 and watch for the pair to bounce off of that level and continue to move up. If the support level of 1.4200 does not hold look for a target of 1.4050.

Another idea for trading is to open two lots and let the first lot hit your target and then you can take profits and at that point move your stop on the other lot but keep it open to enable the pair to continue to run and you can gain more pips if the pair will have a longer run.

Why the Dollar Will be Get Stronger?

The whole market is currently short the dollar right now but I think that could be a big mistake. I know this is a completely contrarian view and that the outlook for the dollar is not good. However, I have 5 good questions and 5 good answers why I think the dollar is headed for a reversal and that this is the perfect time to go long.

1. What good is a strong Euro? I believe a strong Euro will do more damage to Europe than a weak dollar will hurt the U.S. Recently, our weak greenback has been beneficial in two different ways. First by boosting exports and discouraging imports which provides a shot in the arm for our weak economy; not good for the Euro. Second, it helps shrink our trade deposit in goods and services which in turn slows the endless flow of dollars abroad; not good for the Euro.

2. Is there a currency that can replace the dollar as the world’s reserve currency? To this I have to say… into what? Recently China suggested it would diversify away from the dollar to a likely candidate the Euro. However, the Euro doesn’t have enough liquidity to handle the demand. It is still an experimental currency that not one government can invest in with total faith. Also, with more than two-thirds of foreign reserves in dollars, it would most likely take a decade to replace the dollar as the world’s reserve currency.

3. Is there anyone a weak dollar helps in the long run? Even though many countries somewhat dislike Americans, they dislike a really weak dollar even more. Why? A weak dollar makes U.S. exports attractive and forces foreigners to patronize that which they despise. Their manufacturing industries suffer and their unemployment rises. So don’t expect foreign governments to fight a modestly stronger dollar or even encourage it when the reversal begins.

4. What about the stock market? The stock market loves a strong dollar because a weak dollar is NOT beneficial to the stock market. Historically, the average return of the S&P 500 – during times when the dollar was strong – was a gain of 86.6% which is over five times the average return of 16.4% when the dollar was weak.

5. When is the best time to reverse positions in a market? The best time to take a contrarian position in a market is when the most unlikely and unsophisticated are speculating. Give me a break… when corner store owners and housewives start trying to earn extra income by speculating in the Forex, something they know nothing about, we’re near a bottom. The smart money knows that and now you do to.

Yes, the dollar will get strong again; at least moderately. In the near term there will probably be more pressure to the downside. However, a turn is coming and when it does the change will come swiftly.

The NFP and The Markets

The Non-Farm Payroll and Unemployment Reports are considered by most economists to be about the most important economic indicators, and certainly, their immediate aftermath creates a high level of volatility. However, as any trader will tell you, a consistent trend is much easier to profit from than immediate short term movements, so let’s look at the numbers and see if they truly are a help in this regard. The answer will probably surprise you.

As currency traders we of course look at the dollar’s movements but remember, the S&P 500 has a huge amount of influence over where the dollar is going. Actually, the dollar’s relationship with equities is rather a chicken and egg affair-either one can definitely drive the other given the right set of circumstances. For example, the stock market crash which ensued after the Lehman bust last September certainly helped drive the dollar far higher against the higher-yielding currencies while Bernanke’s infamous “electronic printing” comments during his March 15 60 Minutes interview helped push it in the opposite direction and spark a rally in equity markets.

What it really comes down to is investor’s appetite-or lack thereof-for risk. When the investors are risk-averse they move into the dollar and Treasuries as they move away from stocks and commodities while the acceptance of risk has the exact opposite effect. So the real question we need to answer is what if any effect the NFP has on investor’s risk tolerance.

First, the unemployment rate has followed a consistent pattern; it’s worsened each month at a level about as expected. The only exception has been in July when the 0.1 percentage point increase was less than expected. That’s significant because of the way unemployment is measured; workers who are not actively looking for work are not counted in the headline unemployment rate but as they re-enter the job market, they are.

Over January and February, the markets were in risk-averse mode; the S&P 500 lost 9.03% and 10.69% while the dollar index gained 5.46% and 2.53%. The NFP, while certainly bad, was basically about as expected in both reports. In March, the amount of jobs lost continued to worsen but the number was better than what the market was looking for. The S&P gained 9.36% while the dollar index fell 2.92%. The April loss of jobs worsened about as expected as the S&P gained 10.52% and the dollar index fell 0.94%. The tide turned in May when the loss of jobs declined for the first time, beating market expectations. The S&P gained 5.21% while DXY fell 6.22%. The June loss of jobs was far better than expected while the S&P was basically flat and the dollar gained 0.84%. Finally, in July the job loss was far worse than the market was looking for, but he S&P still managed to gain a very healthy7.22% while the dollar fell 2.27%.

The only conclusion that I can draw from the numbers is that the NFP itself is actually a poor predictor for market risk tolerance over the subsequent month, with the proviso that the market is betting that job losses peaked in April at -663k. It seems to be that the unemployment rate carries more weight with investors, especially given what happened in July when stocks rose when the loss of jobs accelerated as the unemployment rate grew less than expected.

Meanwhile, the latest data on unemployment claims shows a decidedly mixed picture when you look a bit deeper into the data. The number of people continuing to claim benefits rose by 69,000 to 6.31M while the 4-week moving average decreased by 148,500 to 6.427M. Economists prefer to use the 4 week averages in this series because they smooth the data however, the number of workers continuing to claim benefits will fall as they run out unemployment insurance, which is happening now.

EURUSD Forecast: GDP Data and Technical Levels to Watch

The EURUSD bearish momentum was paused yesterday. On h4 chart below we can see that after breakdown from the broadening formation price retreat to the upside but still able to stay outside the broadening formation so far. Technically speaking, a retreat or a pullback after breakout/breakdown is normal and often happen in the market and as long price stay outside the formation, the bearish scenario remains intact.

We have US GDP data today that should be a very important data. A worse than expected GDP should be good for the Greenback and we should see further Euro weakness towards 1.3870 while a better data could cancel the bearish outlook and probably trigger significant strength for the Euro re-testing 1.4336 once again. Good luck

1000’s Of Pips-Is It Possible?

I’ve been thinking about this for a while and while I can’t say that I’ve read through every trading strategy, what I have found through my years of experience is that in order to make real and lasting profits you need to attune yourself to the Major Fundamental Events (MFE’s) that set the trends-and then get in when price is most advantageous. When I refer to Major Fundamental Events I’m not just referring to the monthly reports, although those can be used along the way. I’m talking about something that can cause a radical shift, which I’ll explain. One thing before we start though-these MFE’s may only happen a couple times per year, if that. That’s OK though, because these trades are going to yield 1000’s of pips. One trade may last for weeks or months. Also, we’re not at the start of an MFE now, at least in my opinion. As you might have guessed, an MFE can be (and usually is) initiated by the Fed although certain earth-shaking events (the Lehman bankruptcy for example) can certainly do the job. Sometimes several MFE’s can occur simultaneously which is great because those tend to build on each other, strengthening the trend.

The 2 keys for profiting from this are as follows:

1. You have to recognize when an MFE has occurred.

2. You have to understand how markets will be affected after the MFE has occurred and the correlations between the different asset classes (currencies, stocks, bonds and commodities).

The most recent MFE began on March 15, the day of Bernanke’s 60 Minutes interview in which he said the Fed was “electronically” printing money.

It’s true that economists and commentators were talking about the Fed printing money before the interview because everyone was well aware that the Fed had already expanded its balance sheet (quantitative or credit easing = money creation). But the Federal Reserve admitting it on national television was a whole different matter in my opinion. The dollar bear market began in earnest from there while stocks, commodities and Treasury yields rose. In other words, Bernanke created a rally in risky assets because he convinced investors that the value of the so-called safe assets (the dollar and Treasuries) would depreciate. What also was interesting about this MFE was that none of the so-called experts, including the financial press, picked up on it. Then again, none of the so-called experts said anything about what would happen to the dollar after Lehman went bust either, including such luminaries as Jim Rogers who’s been a commodity bull forever (and who got crushed in the 2008 commodity collapse) as well as Peter Schiff who also lost his shirt because he didn’t recognize that a dollar-boosting flight to safety would occur after Lehman’s bankruptcy. Why did Bernanke make the radical decision to allow himself to be interviewed on 60 Minutes? I think that it was because despite all of its previous balance sheet expansion, the Fed to that point had been totally unable to accomplish its goal of boosting stocks and creating some measure of inflation (making commodities more expensive) by weakening the dollar in order to counter the far more dangerous deflationary pressure of the financial crisis. The S&P had made a fresh low just one week before and had declined nearly 58%. No question they were concerned that all of the actions taken to that time could potentially fail, sending the global economy deep into a depression. By the first week in June, the S&P had gained about 40% from the March low. The dollar had lost thousands of pips to the euro, pound and A$, oil was threatening $70 and yield on the benchmark 10 year Treasury was up near 4%. That created another set of problems for the Fed however, because of the detrimental effect that rising energy prices and interest rates naturally would have on consumer spending and housing (because of rising mortgage rates). From that point, the Fed began a serious effort to talk up the risks of deflation (while talking down the risks of inflation) and from there, the markets basically went sideways. In other words, just as his efforts to convince investors that the dollar would depreciate helped boost markets, his deflationary concerns helped throw cold water on the rally he created with his printing-dollars comments.

Market correlations are pretty straightforward once you realize something:

When you trade spot forex, you’re trading pairs-GBP/USD for example. When you buy the pound you are simultaneously selling the dollar. When you’re trading currency futures, the contract is listed in euros or pounds or A$’s-there’s no “pair” in futures. However, despite that you’re still “selling” the dollar when for example you buy the euro contract because you are trading in dollars and your contract moves against the dollar. It’s the same thing for any instrument which is priced in dollars no matter what the asset class is. So when for example you’re buying a stock, for all intents and purposes you are “selling” dollars-your bet is that your stock is going to appreciate against the dollar. Think of it this way-if an asset class priced in dollars goes up, what does it go up against? The dollar of course. So when all of these asset classes are appreciating, it tends to put downward pressure on the dollar. It’s the same for the S&P-the S&P is priced in dollars so for all intents and purposes if you are long the S&P you are short dollars.

So think of it this way:

S&P/USD
OIL/USD
GOLD/USD

Or just:

Commodities/USD
Stocks/USD

How about bonds (Treasuries)?

First, by convention, when people say bonds are up or down they are talking about price.

Second, bond prices and yields move in opposite directions for a very simple reason: If you buy a bond today for $1 that yields 2% and yields go up tomorrow, of course the bond you just bought is going to be worth less simply because it yields less. Stocks and commodities are risky assets while Treasury bonds (and notes and bills) are “risk free.” They’re risk free because if held to maturity your principle and interest are guaranteed by the full faith and credit of the U.S. government. So when the market is “risk averse” (like it was after the Lehman collapse, another MFE)), stocks are sold and bonds are bought. So in general, stocks and Treasuries are inversely correlated. We saw that after Lehman and we saw it happen again after Bernanke’s little interview. It all comes down to investors appetite (or lack thereof) for risk, which obviously is heavily influenced by what I call Major Fundamental Events. “Risk aversion” places tremendous upward pressure on the dollar while the acceptance of risk has the exact opposite effect. That’s why you want an MFE to occur-things can only move one way after one happens and when you recognize it early, you can absolutely make a killing.

Trade Idea: EUR/USD - Exit Long Entered at 1.4175

Despite making another marginal high of 1.4305 in European session, the single currency ran into heavy offers there and retreated sharply from there on profit-taking due to cross-unwinding in euro especially versus Japanese yen due to risk aversion and as price as dropped below, suggesting a temporary top is formed and correction to 1.4118 is likely, however, hold on first testing and bring rebound later.

In view of the above analysis, would exit long entered at 1.4175 and look to buy euro again on further decline. On the upside, recovery should be limited to 1.4240/50 and price should falter well below resistance at 1.4305 and bring further consolidation.

EUR/USD - 1.4169

Most recent candlesticks pattern : N/A
Trend : Up

Original strategy : Buy at 1.4175, Target: 1.4235, Stop: 1.4115

New strategy : Exit long entered at 1.4175

Trade Idea: GBP/USD - Sell at 1.6530

Despite rebounding to an intra-day high of 1.6558, the British pound has retreated after failing to retest resistance at 1.6587, suggesting further consolidation below this level would take place and another corrective decline to 1.6382 is likely, however, only break of 1.6295-1.6311 would confirm top has been formed and bring further decline towards 1.6266 support later.

In view of this, we are turning short on recovery but one should book profit when price approaches 1.6382 support. Above 1.6587 resistance would indicate the rise from 1.5983 has once again resumed, then headway to 1.6620/30 would follow but upside should be limited to 1.6650/60.

GBP/USD - 1.6452

Most recent candlesticks pattern : N/A
Trend : Sideways

Original Strategy : Buy at 1.6420, Target: 1.6560, Stop: 1.6370

New strategy : Sell at 1.6530, Target: 1.6400, Stop: 1.6590

Trade Idea: GBP/USD - Sell at 1.6530

Despite rebounding to an intra-day high of 1.6558, the British pound has retreated after failing to retest resistance at 1.6587, suggesting further consolidation below this level would take place and another corrective decline to 1.6382 is likely, however, only break of 1.6295-1.6311 would confirm top has been formed and bring further decline towards 1.6266 support later.

In view of this, we are turning short on recovery but one should book profit when price approaches 1.6382 support. Above 1.6587 resistance would indicate the rise from 1.5983 has once again resumed, then headway to 1.6620/30 would follow but upside should be limited to 1.6650/60.

GBP/USD - 1.6452

Most recent candlesticks pattern : N/A
Trend : Sideways

Original Strategy : Buy at 1.6420, Target: 1.6560, Stop: 1.6370

New strategy : Sell at 1.6530, Target: 1.6400, Stop: 1.6590

GBP/USD Daily Chart — July 29, 2009

Price action on GBP/USD, a daily chart of which is shown, has taken the rough formation of a cup-and-handle pattern. This is a long-term pattern that consists of a large “U”-shaped rounded bottom with a “handle” consolidation on the right-hand side of the pattern that is angled slightly to the downside. In this type of pattern, the event to watch for would be any strong breakout to the upside of the handle. Currently, price is consolidating just below the upper border of the handle. Any strong upside breakout above this border, that goes on to break the pattern high resistance of 1.6740, should be a substantially bullish sign for the pair. In the event of a further extension of the handle consolidation, dynamic downside support currently resides around the level of the uptrend support line extending from the early March low.
*IMPORTANT NOTICE: The information contained herein is solely for informational purposes and should not be construed as trading advice. We believes that the information contained herein is accurate however, we cannot guarantee the accuracy of said materials. Under no circumstances shall we have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance in connection with the collection, compilation, analysis, interpretation, editing, transcription, transmission, communication, publication or delivery of such information, or (b) any direct, indirect, compensatory or incidental damages whatsoever (including without limitation, lost profits) resulting from the use of or inability to use any such information. The charts and other opinions constituting the information contained herein are, and must be construed solely as statements of opinion and not statements of fact, recommendations and/or trading advice. We are cautions that no single source of information should be used when making trading decisions.

EUR/USD intraday strategy 29.07.2009

Pair EUR/USD is traded within the limits of a range 1.3757-1.4294 on an hour graph. We can see on it, that rate EUR/USD is traded above level sliding by average with phase 55 on an hour graph (level 1.4226), that possesses to recovery of price in short-term prospect.

I recommend to open long positions after breakdown following the results of an hour of resistance in the order 1.4271 (at the moment of the article publication), for the purpose raises to resistance in the order 1.4294 and in case of its breakdown following the results of an hour to 1.4321. Stop-loss at the given strategy can be placed in the order 1.4230.

I recommend to open short positions at support breakdown in the order 1.4209 following the results of an hour, for the purpose drops to support in the order 1.4180 and in case of its breakdown following the results of an hour to 1.4141. Stop-loss at the given strategy can be placed in the order 1.4247.

Considering, that sliding average and the disposition of boundaries of technical figures moves with the course of time, it is necessary to updating of their position on an hour graph. I also recommend to open positions following the results of an hour to avoid false breaks.

In case of strong driving at break of an engineering figure, I recommend to wait corrections. That level which resistance should become strong support and near to the given level it is necessary to open position in a breakdown direction.

EURUSD Daily Forecast: July 27

EURUSD Forecast

The EURUSD attempted to push higher on Friday, topped at 1.4252 but further upside momentum seemed limited as the pair closed a little bit lower at 1.4200. The broadening formation should keep us stay away from the market but a clear breakout above 1.4250/70 area could trigger further bullish momentum re-testing key level 1.4336. Immediate support at 1.4150. Break below that area should trigger further downside pressure towards 1.4050. CCI in neutral area on h4 chart.