Via: Online Schools

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The global stock markets were sent crashing last Friday when the political turmoil in Egypt escalated. The major indices in Asia, namely the Nikkei, Topix, and Hang Seng were all in red. The Nikkei slipped by 1.13% to 10,360.30 while the Topix slipped by 1.07% to 919.69. Similarly, Hong Kong’s Hang Seng also fell by 0.68% to 23,617.00. The markets in Europe experienced the same battering with the Stoxx 50 faltering by 1.39% to 2,954.13. Moreover, both FTSE 100 and DAX likewise fell by 1.40% to 5,881.37 and 0.74% to 7,102.80, respectively. In the US, the Dow Jones Industrial Average fell by 1.39% to 11,823.70 while the broader S&P 500 sunk by 1.79% to 1,276.34. The massive sell off even pushed the Nasdaq by 2.48% lower to 2,686.89 which was its worst dropped in 5 months.

So what exactly happened in Egypt? Before that, let me first give you a little background on Egypt president, Hosni Mubarak.

Muhammad Hosni Sayyid Mubarak or Hosni Mubarak for short is the current and fourth president of the Arab Republic of Egypt. Actually, he has been Egypt’s president for more than 3 decades already since he assumed the position when his predecessor, President Anwar El-Sadat was assassinated back in October 14, 1981. His presidency has been marred with political corruption given his long stay. Recently, he and his administration have once again been the subject of public uprising.

Egyptian protesters banged with the police and military as the former pushes for “liberty” and “change,” effectively asking the administration to resign. More than 100 people have already been killed in the protest with about 450 more being arrested as they continue to defy the government’s curfew. Widespread riot and looting have also been prevalent amid the chaos. Just today (January 30), Egyptian President Hosni appointed Omar Suleiman, the chief of Egyptian Intelligence, as vice president of the country. This could be a sign that the president is becoming ready to leave his post. Still, the public continued to rally and protest in the streets and are expected to do so until he finally vacate the presidency.

So what’s all fuzz about Egypt. Well, for one Egypt is the most populous among the Arab nations that borders the Suez Canal. The Suez Canal, in case you do not know, is one of the busiest shipping routes in the world. About 8% of global sea trade with 1 million to 1.6 million barrels of crude oil pass through the canal. Another 3 million or so barrels of crude oil pass through an adjacent pipeline, putting the total to about 4.7% of the global output. Hence, any disruption  like a civil war in Egypt could possibly affect the flow of trade within the region. Moreover, the immediate negative sentiment of the market would lead investors to pull out their money, causing a widespread sell off in the markets.

Now, as long as the unrest in Egypt remains, expect a lot of investors to shy away from the markets. On a separate note, the weaker-than-expected US fourth quarter GDP (3.2% versus 3.5%) could further add some selling pressure as soon as the Asian trading opens on Monday. In fact, the week could even start with a downside gap. So if you do not have any open long positions, it’s better to just stay away or even short sell selected issues if you can. Right now I would be very careful since a lot of issues are presently trading just above their major technical supports. As you know, a break of those could send the respective issues plummeting. Stay on your toes!

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2010 went particularly well for the Philippine economy as it is expected to have expanded by as much as 7.0% for the whole year. For the first 3 quarters of 2010, the economy already posted a 7.5% expansion which was well above the 5-6% growth target. GDP, as we know, is the total value of final goods and services in the country. At least for 2010, election related spending, soaring remittance and business process outsourcing (BPO) revenue levels, jump in capital investments, and an uptick in exports all helped bring the Philippines into the green zone once again. In May last year, the country held a national election. Several months leading to it, of course, spending took cue as wannabee officials court the masses with projects here and there in hopes of luring them for their votes. Media spending also rose during that period as candidates sell themselves through radio and television commercials, billboards and print ads. The success of the elections, of having a peaceful one, likewise boosted investor confidence. Optimism intensified when Noynoy Aquino, now President of the Philippines, stepped into the country’s driver seat. His administration’s platform of spending rationalization, plugging the leaks in collecting taxes, and its push for more public-private partnerships (PPP) has so far worked and more so attracted additional capital placements.

Remittances, which accounts for roughly 10% of the country’s total output, reached a record level for the first 11 months of last year as it hit $17.0 billion from January to November of last year. For the month of December, remittance is seen to at least be at par with November’s amount of $1.613 billion as overseas workers send money back home for Christmas and New Year. For 2010, remittances are projected by the Bangko Sentral ng Pilipinas (BSP) to reach $18.79 billion, a rise of 8% from 2009. The money that is sent home help finance domestic consumption (spending for cars, homes, food, etc.) which in itself takes up about 70-80% of the entire GDP. Additionally, the country’s BPO sector alone continued to show strength as it has been growing by an average of 25% annually for the last few years. The industry is now worth $7 billion which is about 2.5% of GDP. Capital investments, which produce about 17% of the country’s total output, grew by annualized 10.8% in the 2nd quarter and 8.9% in the 3rd quarter. Another 8-9% growth is seen for the last remaining quarter of the year.

As mentioned earlier, improved optimism in the Philippines, which was helped partly by President Aquino’s economic platform, the low level of interest rates, and an outlook and rating upgrade by international rating agencies on Philippine government- issued bonds attracted a lot of capital spending and inflows. Even the so called “hot money” hit a net record of $4.61 billion for 2010 which was almost 12 folds of its value from a year earlier.

One surprise came in the country’s export sector, which takes up about 40% of the GDP, when it grew by an annualized 29.1% in the 2nd quarter and 29.9% in the 3rd quarter of 2010. For the remaining part of the year, exports are seen to have remained at the same pace.  The country actually posted its first notable trade surplus in almost nine years in the 3rd quarter as the industry benefit from the upswing in the demand for electronics.

For 2011, the lack of election-related spending could cause a slower growth in the economy than 2010. However, renewed confidence in the market, which is anticipated to take place before the release of 2010 corporate earnings, will support further consumer spending and capital inflows. Hot money inflows, though, could be taper off a bit due to the higher valuations of Philippine financial assets. Nonetheless, the economy’s fundamentals at least from the present perspective still looks solid.

The Philippines’ financial markets at least have been taking a toll as of late due to some negative news from abroad. The credit issue in the euro zone and the threat of an all out war between North Korea and South Korea turned some of the investor confidence off. Recently, weak employment figures in the US and the inflation concerns in China have been putting a drag on our markets. However, I would like that these things for the most part have already been well priced in. Even an interest rate hike in China, which would indeed temper their domestic business activity and their trading partners’ as well could still end up to our favor. How? Well, a rate hike would increase the Yuan’s valuation against its peers which in turn would give them more purchasing power, making exports from the Philippines more enticing. For 2011, economists estimate that China will allow the Yuan to appreciate by another 6% or so against the US dollar as a move to fight inflation.

Another thing is that remittances and revenues from the BPO sector would continue to support the economy as companies abroad continue to optimize their operations by seeking cheaper but quality labor. Foreign investors have been recognizing the quality and quantity of our Filipino workforce. Given this, the BPO sector is seen to rise again by by 25% this year. In the same way, remittances from abroad could even be larger if country’s like South Korea (SK) opens its labor market for English-teaching Filipinos. According to South Korea’s Labor Ministry, SK could soon open its door for Filipino English teachers as Korea encourage their youth to learn the language. As you know, majority of the Filipinos could effectively speak and communicate in English.

Moving on, I personally like to highlight the corporate acquisitions and capital investments done recently since its gives us a big clue regarding the outlook of the country’s economy. Note that these companies would not engage in these projects if they do not see them resulting into positive equity to the company. San Miguel Corporation (SMC), for example, made a lot of press when it increased its stake in Petron Corporation (PCOR) to 68%. It also made several moves in its telecommunications and energy units. Recently, the company tapped the international bond market as it sought to finance $500 million for its power unit. Alliance Global Inc. (AGI) also made some noise when it bought a majority of another publicly listed property firm in Fil-Estate Land (LND). Manila Electric Company or Meralco (MER) also started with its own 120-megawatt to 150-MW peaking plant in Calamba which is said to be worth about $150 million. Business expansions like the above not only contribute to the companies’ bottomline line but also provides additional employment. These additional employment, as we know, would put money in the employees pockets, allowing them to spend for their needs. Such at the end would add on to the overall consumption in the economy.

On the technical side, the Philippine Stock Exchange Composite Index (PSEi), which could be seen as the leading barometer of the Philippines’ economy, is also suggesting a slower growth for the country compared to the previous year. In fact, the index even started the new year on a bad note when it broke down from an ascending triangle pattern which is supposedly bullish. After the breakdown, the PSEi attempted to rally but was halted by the triangle’s support and its 50-day moving average. At present, the index is hanging on to the 50% Fibonacci retracement level of the last up wave. A closing below its present level could send it towards 3,850 which is its 61.8% Fibonacci retracement mark which is also its downside target from its recent breakdown. Despite this somewhat bearish outlook in the near term, the index’s uptrend and its 200-day moving average remain unbroken. On that note, a fall below the 200-MA could be disastrous. Nonetheless, the bias continues to be positive for the medium term, assuming again the 200-MA does not get violated. Let’s just hope that the upcoming 4Q GDP and corporate reports could bring back buying interest in the market. The possible sovereign credit rating upgrade by Moody’s could likewise instill some confidence among investors.

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Envision being able to buy gold the way you buy your favorite soda. A fantasy? Not so…

“Gold to go” unveils its first gold dispensing ATM in the world at Emirates Palace hotel in Abu Dhabi.

Watch the video after the JUMP…

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Looks like these guys properly explained what quantitative easing is lol. Check out the video after the JUMP…

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Later, the buying gained more momentum when the latest initial jobless claims, which is the number of people who are applying for unemployment benefits from the state for the first time, in the US registered a much lower figure of 407,000 than the market’s 434,000 forecast. The previous week’s count was at 441,000. The market actually more weight on the improvement in the jobless claims versus the country’s durable goods orders which fell by 3.3% in October.Earlier in the week, data showed that the US economy grew by 2.5% against the 2.0% estimate during the third quarter due to higher consumption which can partially attributed to the gains in employee wages. Given these, its apparent the US economy is slowly picking up speed.

To the end of the day, the Dow jumped by 1.31% while the broader S&P 500 soared by 1.93%. The Nasdaq, similarly, gained  by 1.43% while the yield on the 10-year bond in the US closed higher by 0.1520 points to 2.9140%.

And oh… Happy Thanksgiving everyone!!!

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The tension between the two Koreas started way back in 1950. In case you do not know, the two Koreas are technically still at war today since no peace treaty was ever signed following the Korean war during the 50′s. Anyway, North Korea, which was ruled by a communist government which was headed by Kim Il Sung (the father of Kim Jung Il), and South Korea with a democratic one, both wanted to unify the entire Korean peninsula under their own government. To unify the region by force, NoKor invaded South on June 1950. North almost took over the whole South but it was not able to get Pusan. The South, UN forces, and the Americans, then rallied and hit Inchon which was a city located at the north west of SoKor. This led the Southern forces to regain control of Seoul. Eventually, they were able to push most of the north forces back behind the 38th parallel.

SoKor, however, continued to attack the north and almost took the whole peninsula. But then the Chinese came to the north’s side and pushed the south forces back below the parallel. As I’ve mentioned, no formal peace treaty between the two was ever signed. Since the major part of the war, skirmishes between the two nations have been continuing every once in awhile near the border. In fact, SoKor was blaming the north for the sinking of its naval ship this March.

So how does the tension between the two Koreas affect the global markets?

Well of course, any threat to global stability especially a potential war between two powerhouses (one economic and the other nuclear) negatively affects the market’s sentiment. At these times, investors rather place their money in safer instruments. The less safe investments like equities would surely take a toll and it did. Ironically, however, this incident in the East further supported the recent rally of the greenback. Again, at times of fear, people move to safe investments like the USD and JPY and away from the higher yielding ones like the AUD, EUR, GBP, etc. Therefore, if any more military conflict between the two occurs, the USD would surely benefit from it. But given the backing of the US to SoKor and the diplomatic stance of the United Nations, it is unlikely that there will be more attacks on either state – unless of course north does their thing again.

By the way, below are some pictures of the former childhood residence of the Northern Korean leader Kim Jung Il that I took during one of my visits in the peninsula this year.

The kid in the pic with the head scratched off (by South Korean tourists) is Kim Jung Il of North Korea.

PS.

To Kim Jung Il – ? ??????

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Chart-wise, my outlook on the Dow Jones Industrial Average, which is one of the US market benchmarks, could be bullish. As for my technical analysis, I spotted this 2-year cup and handle formation. By the way, a cup and handle formation is naturally bullish, it could be a reversal or a continuation pattern as well.  The only way to find out if the pattern is indeed a cup and handle if the index moves past above the neckline. If it does, it could rise and find some selling pressure at the next resistance around the 12,000.00 psychological level. Furthermore, if that marker gets cleared out, the next resistance it could aim for is around the 13,000.00 area. On the opposite note, in case the ^DJI fails to resume its ascend, the significant support could be the 11,000.00 psychological level. If that fails to hold the index from further declining, the next support could be the 19-month uptrend.

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Will the Aussie reach parity with the US dollar or even better in the months to come? Technically speaking, there’s a good chance that it would. As you can see from its daily chart, the AUDUSD pair has recently broken out from a descending right-angled broadening triangle. Having past the 0.9350 and 0.9400 hurdles, the pair could now aim for 1.0000. It could, however, encounter some resistance at its all-time high at 0.9849 which it set back in 2008. Nonetheless, a move above this level could put the AUD on track towards dollar-parity. In fact, if we project the height of the pattern from the point of breakout, its upside target is even better – 1.0600. And as long as the pair’s uptrend channel remains intact, I could say that the Aussie has some more room to move north. But with its present overbought conditi0n and the wall that it is seeing at the channel’s resistance, it could move sideways or even retrace for awhile in the near term before making its journey to the heavens.

A lot of high impact economic reports are due in Australia this week. Tomorrow (October 5), Australia’s retail sales and trade balance figures for the month of August will be on deck. Sales at the retail level are seen to have increased again by 0.5% on top of the previous month’s 0.7% gain. The country’s trade balance is likewise seen to tally handsome surplus of A$2.31 billion from A$1.89 billion due to the country’s expansion in exports to China.

Later that day, the Reserve Bank of Australia will also deliver its monetary policy decision. There, the bank is expected to raise its interest rate by 0.25% to 4.75% after 5 months of holding it at 4.50%. The 1.2% growth rate in Australia’s economy during the second quarter of the year plus the recent improvement in the country’s labor market could indeed warrant a hike in the central bank’s interest rate. A rate hike plus the overall weakness in the greenback would make the Aussie more attractive; imagine netting 4.50% (4.75% – 0.25%) just by going long on the AUDUSD.

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A lot of people are asking, will the Philippine peso continue to strengthen against the US dollar? Based on its monthly chart, I’d say that there’s a good chance that it will especially if the USDPHP pair breaks the 43.668 support. If and when it does, the next obvious support would not be at 42.00 as some financial analyst predict but at 40.00. Say the peso buying in tandem with the dollar selling continues and the 40.00 marker gets breached as well, then the pair’s next downside stage would be at 37.50. Actually, I do not want to alarm those who are highly leverage in the greenback. Notice, however, the huge head and shoulders pattern that could be forming already. If this pattern gets validated by a break below 40.00 then it is quite possible that the peso could recover its former glory back in its hay day and trade near the 26.00 versus the USD once again.

The question is, will the Banko Sentral ng Pilipinas (Central Bank of the Philippines) allow the Philippine Peso to appreciate that much? Well, the BSP is not a rookie in protecting the peso. It already defended the peso’s increase in valuation in the past to protect the country’s export industry, foreign direct investments, and the money that the Overseas Filipino Workers (OFWs) are sending back. Hence, it is possible for the BSP to do the same. If it does, then the greenback could rally back towards 46.00 or even 48.00 versus the peso. Still, the global market has the bigger influence regarding the peso. So, continued increase in remittances, which by the way takes up a good chunk of the country’s total income, plus the broad-based weakness in the USD (this was explained in my recent post, please see it here) would benefit the PHP. Companies all over the world are expected continue to lessen their operating costs, thus, supporting the Philippines’ BPO industry and its FDIs in general. Such would also reflect positively in the peso.

Would a higher peso valuation benefit the Philippines? The Philippines is not really an export-based country so even if the country’s export sector gets negatively affected, it would not reflect badly on its overall output. For the longest time, majority of the country GDP is from domestic consumption. Hence, an increase in the peso’s valuation would even encourage more consumption as imports would then be cheaper. Cheaper imports of course would allow local companies to better access and purchase technology that were once scarce, making the processes of the local industries more efficient. Such could also allow local companies to develop their technology which would mark the country’s move from a ‘third world’ country to at least second. Now, will that scenario happen within the next decade? Only time will tell but I’m optimistic that it will.

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Hiyo FX peeps! Did I get your attention? Yes. I believe that its very likely that the EURUSD pair could gain by about 1,250 pips. Now that’s a lot! As you can see from its daily chart, the fiber has recently broken out from a very nice cup and  handle formation. At present, the pair is trading just above the neckline of the pattern. With the stochastics in the overbought territory, it could exchange in a range-bound fashion for awhile before moving north. Now, a move past the 1.3500 resistance could send it on the way towards its minimum upside target (computed by projecting the height of the pattern from the point of breakout at 1.4750.  If all go well, it could achieve this target in about 6 months which is also the time that it took to form the pattern.

Despite the recent dip in Europe’s Purchasing Managers’ Indices (PMIs), the business climate in Germany as measured in the German Ifo Business Climate Index surprisingly jumped to its highest score in more than three years this month. The index came in at 106.8 which is over the market’s 106.3 estimate. This rise indicates that German companies can withstand the weaker international demand. On the other side of the globe, in the US, the Fed’s inclination to place another set of stimulus programs to support the slowing growth in the US’s economy has of course weakened the greenback to the benefit of the other non-dollar currencies like the EUR. This plus the rally in the US equities markets have also urged investors to move away from the USD in exchange of the higher yielding assets and anti-dollars like the euro.

Just now, the US’s core durable orders for the month of August have grown by 2.0%, which is almost twice of the 0.9% forecast. The previous month’s change was also positively revised to -2.8% from -3.8%. These numbers signify that the chances of the earlier threat of a double dip recession in the US economy have gotten lesser and lesser.

For next week, the CB Consumer Confidence in September is seen to fall to 52.5 from 53.5. But given the strong rally in the global equities markets for the past two weeks which show the manifestation of consumer confidence in the markets, it is therefore possible for the index to have a better-than-expected result. A better-than-projected mark, as we know, could spur some risk taking and EUR buying.

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In my technical analysis, for this index to head further up alongside with the positive reports, it needs to first pass above the 3-year resistance line seen in the chart. If it successfully breaches that marker, the next resistance could the 11,000.00 psychological level then after that is 11,309.00. However, if this index drops, the current support that could hold on to it is the 18-month uptrend. If it slides further below that area, the next support could be the 10,000.00 psychological level then after that is 9,600.00.

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Hiyo FX friends! Here’s my short and sweet technical view on the CHFJPY pair. As you can see from its daily chart, the pair has broken out from a rare inverted head and shoulders continuation pattern. You see, an inverted head and shoulders pattern is generally a bullish reversal pattern although it can occur as a continuation from time to time as in this case. In any case, the upside target for the pair, judging by the height of the pattern and projecting it from the point of breakout, would be somewhere below 88.00. Sustained buying interest could push it over to that marker. At present, though, the pair’s move up north could take a halt given its overbought condition. Given this, it is possible for the pair to range or even retrace for awhile. If ever it weakens, the neckline of the previous formation should keep it afloat. Still, I could more or less say that things are looking up for the Swiss franc in the near term. Long Swiss franc anyone?

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It’s another manic week Forex friends! In today’s FX feature I present to you the daily chart of AUDJPY. As you can see, the pair has recently broken out (upside) from a nice symmetrical triangle formation. This breakout could swing the pair towards its previous high near the 88.00 marker. Projecting the base of the triangle from the point of breakout, the resulting upside target would be at 88.00 as well. The Aussie’s run, however, may be tempered for awhile because conditions are already overbought. The pair could range or retrace shortly before heading north again. And given it’s recent spike, it could potentially form a flag or a pennant pattern. At present, the AUDJPY pair is trading just above 80.00. Therefore, if it reaches 88.00, that would be a sweet 10% gain (1:1 margin).

The recent rally in the global equities market and gold’s rush towards fresh all-time high (see my recent post here) have helped the commodity dollars like the AUD. For this week, no high impact economic reports are due from Australia. The major releases, though, from the US, Canada, and New Zealand would more likely sway the Aussie’s short term movement. The US Fed, of course, will have its monetary policy decision on September 21. Building permits, new and existing home sales plus durable goods orders are due as well from the US. In Canada, the country’s CPI and retail sales accounts are on deck on September 21 and 22. New Zealand, Australia’s neighbor, will likewise publish its second quarter GDP growth. Risk appetite, resulting from one or all the these accounts could benefit the non-dollar currencies like the Aussie. The opposite, however, would weigh on it. Watch out for these reports!

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Well, well, well. The EURUSD pair or the fiber as what traders call it in the streets appears to have broken out from a rectangle or consolidation. You see, the had been trending up from a low of 1.1876 last June 7 to a high of 1.3334 in August before correcting. All along I thought that the pair would already reverse but it did not. What it did was it only corrected to its 50% Fibonacci retracement level. It then continued to range or trade sideways until yesterday where it broke out to the upside when it finally breached the 1.2900 hurdle. However, the pair seems to be meeting some temporary resistance at 1.3000. If and when it moves past this number, chances are it would once again revisit its previous high just above 1.3300. Given the upside breakout, I can say that there is now a higher probability that the euro will move higher against the US dollar in the near term.

Germany’s September Zew economic sentiment index came in sour, unexpectedly falling to -4.7 (vs. 10.7) from from 14.0. The same sentiment index for the entire euro zone also slipped to 4.4 from 15.8. The slide in confidence can be attributed to the wide budget cuts done by the governments that make up the economic zone. Remember that the zone was being plagued with a credit crisis. One way to plug the countries’ deficit holes would be to drastically slash their spending. A cut in spending would obviously limit the business activity in the region but given Europe’s present fiscal situation, such move is really warranted.

Despite this, the euro still managed to outmaneuver the greenback thanks to the better than expected US core retail sales. Core retail sales in August grew by 0.6% which is twice of the market’s 0.3% consensus.

No high impact economic reports are due from the euro zone for the rest of this week. The euro, however, could take its cue from the releases from the United States. Today, the Us will publish its Empire State manufacturing index and its August industrial production. The former is seen to have reached 8.7 from 7.1 while the latter is expected to have increased again by 0.3%. The expected improvement in the Philadelphia Fed manufacturing index (from -7.7 to 0.9) which will be due tomorrow and the projected jump in the Prelim UoM Consumer Sentiment (from 68.9 to 70.3) could also induce some risk taking. Watch out for these reports.

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Welcome to another day of FX trading! In today’s fx feature is the weekly chart of the USDCHF. As you can see, the pair has been losing a lot ground for several weeks now. After hitting a high of 1.1731 last May 31, it has slid since then. In fact, it had already touched the parity level early today. Still, previous supports around the 1.0000 psychological level have kept the price from falling any further. If if the 1.0000 marker gets breached, the pair could revisit its 1-year low at 0.9916. A break of this low could send it towards the pair’s all time low at 0.9635. But with investors protecting the price at 1.0000 and an oversold condition, the pair could, however, stage a rally.

Renewed confidence in the global markets have weakened the dollar’s valuation against its peers as of late. Both the DJIA and the broader S&P 500 have again logged in some beautiful gains yesterday, rising by 0.78% and 1.11%, respectively. Yesterday’s jump in confidence which was reflected in the rise in the equities markets was because of the Basel III agreement that was concluded yesterday. The Basel III is an international regulatory code that requires banks to raise their common equity to 4.5% from 2.0%. This equity will be used by the banks as buffer in case they encounter liquidity problems from say investor withdrawals and the like. In the East, China’s handsome industrial production (13.9%) and retail sales (18.2%) growth further supported the market’s optimism.

The highlight of this week for Switzerland is the Swiss National Bank’s monetary policy decision on Thursday (September 16). The SNB is expected to keep its interest rate unchanged at 0.25%. The bank, though, is very notorious in intervening in the fx market to prevent the Swissy appreciation. They do so because a higher Swissy negatively impacts their export industry. With the Swissy trading at an all-time high against the euro and flirting with historical highs versus the Us dollar, the SNB could indeed meddle in the market. If it does, then a sudden spike against the Swiss franc could occur. Nonetheless, even if the SNB intervenes, its effect would just be temporary. Market sentiment is still stronger and as long as optimism remains, the Swissy could strengthen still.

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Happy weekend FX people! On today’s FX feature is an update of the AUDUSD pair which I posted last September 5 (please see it here). As you can see, the pair has continued to rise within an ascending channel. And as I’ve suggested, the pair indeed rose to mark its fifth wave (wave 5). If the Elliot Wave Principle holds true and if my wave counting is correct then as the theory suggests, the pair should be due for a retracement. Remember that the EWP predicts a correction in the prices after the completion of the fifth wave, starting with wave A and ending with wave C. And given the obvious technical resistances ahead and an overbought condition as indicated in the stochastics, the pair could indeed dip or at least move sideways. If the Aussie weakens against the US dollar, the peak of the third wave around the 0.9200 level and the channel’s support should keep it from falling further.

The Aussie along with the non-dollar currencies rose this Friday due to the better-than-expected July wholesale inventories report in the US. Wholesale inventories has risen by 1.3% as compared to the 0.4% market forecast. China’s better-than-projected industrial production (13.9% vs. 13.1%) , retail sales (18.4% vs. 18.0%), new loans (545 billion vs. 500 billion), M2 money supply (19.2% vs. 17.5%), and the slower PPI (4.3% vs. 4.6%), have also helped the Aussie. Remember that Australia is one of the biggest supplier of raw materials to China. Hence, an increasing business activity means more business for Australia. A weaker PPI, in the same way, benefits the Aussie since a monetary tightening by the Chinese government would be postponed which would allow for business to go on without additional restrictions as of the moment.

For the coming week, no market moving events are scheduled in Australia. Given the lack of economic reports from the country, investors could take this as a chance to pocket some of their profits from their long Aussie positions.

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Good day FX peeps! To cap the week I present to you an update of the CADJPY. You see, the pair has consolidated within a small symmetrical triangle after it broke down from a bigger descending triangle formation. As of the moment, the pair is already nearing the apex of symmetrical triangle. This suggests that a break out whether to the upside or to the downside is imminent. But given the pair’s general trend (downtrend) and its recent break down from a descending triangle formation, I can say that it has a higher chance of moving south than north. Even it breaks the resistance of the small triangle, a solid resistance is still present at the 82.00 marker which incidentally is also the former support of the previous descending triangle to push back down. In any case, a move below the support of the present triangle could send it back to the previous low at 78.41. A move above the 82.00 level, on the other hand, could change the pair’s course to at least sideways.

In my post last September 6 (please see it here), I mentioned that it’s possible for the Bank of Canada (BOC) to hold its interest rate unchanged rather than hiking it. However, I was proven wrong when the central bank actually raised its benchmark interest rate as expected by the market by 0.25% to 1.00% from 0.75%, making the interest rate differential between the Canadian dollar and the Japanese yen wider. This decision, though, was not enough for the CADJPY to break key resistances at its long term downtrend line and at 82.00 as it only increased from an opening of 79.93 to close at 80.96. Yesterday’s weaker-than-projected housing starts number (183k vs. 185k) and the worsening of Canada’s trade balance figure to -C$2.7 billion from -C$1.8 billion did not help as well.

Canada’s employment change and unemployment rate for the month of August are on deck today at 11:00 am GMT. Canadian firms are seen to have added about 30,800 jobs in August after laying about 9,300 during the previous month. The country’s jobless rate, though, is still projected to remain the same at 8.0%. Generally, an improvement in Canada’s labor market is bullish for the economy and the Loonie. But is the expected increase in employment or better enough for investors to push the CADJPY above 82.00? Let us see.

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Good day Forex friends! In today’s FX special, I present to you the monthly chart of the US Dollar versus the Singapore Dollar (USDSGD). As you can see, the USDSGD pair has been sloping downwards for quite some time now. Last Friday, however, it was able to cross below the psychological 1.3500 support, marking a new all-time high for the Singapore dollar. With an oversold condition (as indicated in the stochastics), the pair could still rally. Though the long term downtrend line should keep it from rising further. A potential descending triangle could be forming if that scenario occurs. In any case, a clear break below the 1.3500 support could send the USDSGD pair lower by about 4,000 pips! Long SGD anyone?

Last week’s better-than-expected employment and housing figures in the US have sparked some risk taking among investors, causing them to leave the safety of the greenback for the like of the SGD. Singapore is actually a highly developed economy in Asia despite its size which makes it a prime place of investment. Everyone knows about the double digit growth in China but Singapore is actually the fastest growing economy in the world, expanding by 17.9% for the first half of 2010! In any case, some analyst say that the Monetary Authority of Singapore (MAS) would intervene in the market to prevent the SGD’s rapid appreciation in order to protect the country’s export industry which is its main source of revenue. But if risk taking persists, a higher valuation of the Singapore dollar could be very well tolerated.

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Hiyo FX peeps! Here’s a weekly chart of the GBPCHF pair. As you can see, the pair has been trading sideways after hitting a low of 1.5118 back in December 29 back in 2008. Just recently, however, the Swiss franc was able to hurdle below the 1.5825 marker against the British pound. Given this price action, the next support that I see for the GBPCHF pair is the low that it marked in 2008 (1.5118). Hence, the pair could fall back to around the mentioned low unless it is able to climb over the support-now-turned-resistance at 1.5825.

The main event of this week for the UK will be the will be the monetary policy decision of the Bank of England (BOE) on Thusday (September 9). Last month, the bank’s MPC kept its monetary policies unchanged. It left its interest rate at 0.50% and its asset purchase facility at 200 billion. The UK’s economy began to grow during the last quarter of last year. It even expanded by 1.2% during the second half of this year. The bank, however, views that there is still a big chance that this recovery will not be sustained. It said that there are still a lot of uncertainties and risks surrounding the UK’s market.

From then until now, the UK’s economic environment remains mixed. While the country’s retail sales came out with a 1.1% growth against the 0.7% consensus, the country’s home prices remain subdued. In fact, the UK’s HPI is on a 3-month losing streak, dipping by another 0.9% during the last month. Both manufacturing and services PMI also showed weakness during the last couple of periods. Switzerland, on the other hand, showed surprising 4.8% jump in their retail sales, more than doubling the 2.3% market estimate. So between the UK and Switzerland, the later appears to be the less fragile.

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Welcome to another week of forex trading! In today’s FX feature is the daily cast of the CADJPY. As you can see from the chart, the pair broke down from a descending triangle pattern. Since then, it has been trading between 78.60 and 81.70. Last Friday, we the Canadian dollar rallied against the Japanese yen to push the CADJPY pair closer to where the former support of the triangle. In my view, there is still some room for the pair to move higher although it could turn back when it hits a resistance at this former support. If it does, it could fall back to around 78.60.

The Bank of Canada will hold its monetary policy decision this coming Wednesday (September 8). The bank is expected to raise its interest rate to 1.00% from 0.75%. But like what I said in my title, there’s an outside chance that the BOC could surprise the markets by not hiking its benchmark interest rate.

Let’s us check Canada’s recent economic data to see why. First of all, the country’s unemployment rate unexpectedly rose to 8.-% from 7.9% with firms cutting about 9,300 jobs. Its Ivey PMI, which gauges the activity of both manufacturing and sercies industry through the eyes of purchasing managers, also dipped by several notches to 54.0 from 58.9.  More importantly, Canada’s wholesale and retail sales have continued to suffer with the former slipping by 0.3% and the core retail sales sliding again by another 0.5%. As a result, the country’s core CPI for the month has also slipped by 0.1%.

The above data shows that the situation as of the moment does not merit a rate hike as of yet especially with the unexpected slide in the latest month-ever-month CPI. The Loonie would almost surely take a hit if the BOC surprises the market by not raising its interest rates. But in case it does, the Canadian dollar could still trade on a range bound fashion or even fall since a rate hike is already forecasted and priced in by the market.

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Good day to you my fellow FX men and women! Today I present to you the daily chart of the AUDUSD. As you can see, the pair has been trading within an ascending channel since the middle of May 2010. Of course, the pair would more like trend higher as long as the channel’s support does not buckle. The Aussie, however, could meet some resistance at the pair’s previous high near the 0.9200 level. With the stochastics in the overbought area, it could rest for a while before making another move to the north. A move past the 0.9200 level could push it towards 0.9300. The Elliot Wave Principle (EWP) also seems to confirm this potential price action. If my wave counting is correct, the AUDUSD could already be in its fifth wave. This then suggests that the next short term up-move would more likely surpass the peak at 0.9200.

Recent economic data in Australia goes to support the positive sentiment towards the Aussie. For one, the corporate profits of Australian firms for the second quarter of the year have unexpectedly soared by 18.9% compared to the market’s 5.9% growth forecast. The firms’ 1Q scores were also positively revised to 4.3% from 3.9%. The country’s building approvals have also expanded for the first time in 5 months. The account surprisingly rose 2.3% in July after dipping by 3.4% during the previous month. Retail sales for the same period have also shown some good figures, expanding by 0.7% in July and 0.4% in June. More importantly, the country’s second quarter gross domestic product (GDP), has surpassed the market’s 0.9% forecast with a 1.2% growth. the first quarter’s overall output expansion was also revised upwards to 0.7% from 0.5%.

On Tuesday (September 7), the Reserve Bank of Australia will have its monetary policy decision. While the bank is still expected to hold its benchmark interest rates at 4.5%, the bank’s tone would more likely lie towards the hawkish end of the spectrum given the improvements economy. Any positive outlook regarding the country would of course be bullish on the Australian dollar as well.

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Hiyo my avid forex fans! In my previous article about the euro, I mentioned that its recent rally after breaking down from what appears to be a head and shoulders formation could be over soon. However, a full blown breakdown and a reversal did not really pan out as the euro bulls were able to out-muscle the bears to place them back on top. As you can see from the EURUSD’s 4-hour chart, the bears were forced to cover their short positions when the price of the euro went back above the neckline of the head and shoulders. The pair actually found support at the 50% Fibonacci retracement level which interestingly lies almost in line with the psychological 1.2600 marker. For awhile, it met some resistance at the neckline and it even fell below the support of the rising wedge (please see my previous post here). But like I said, the euro was able to turn the tide to its favor.

Yesterday, the fiber of the EURUSD broke out from a bullish pennant pattern. Though, it would more likely range for awhile before making a move north. The stochastics, being in the overbought region, also suggests a temporary pause in its ascent. If its able to move past the resistance at 1.2900 then its next stop would be at 1.3000. A move past 1.3000 could propel it higher all the way to the peak of the head of the former formation.

The better-than-expected US employment report pushed the anti-dollar currencies like the EUR back into the spotlight. US firms only slashed 54,000 jobs as compared to the 101,000 estimate. The job cuts in the previous month were also revised downwards to 54,000 from 131,000. Still, the US’s unemployment rate rose slightly to 9.6% from 9.5%. Nonetheless, the encouraging jobs numbers (compared to the market’s consensus) lifted the investors risk appetite during the session.

No high impact economic reports are due this week in the euro zone. The euro, however, could take its cue from the developments in the other nations particularly in Australia, Canada, and the UK. Australia, the UK, and Canada will have their monetary policy decision this week. Australia and the UK are expected to keep their rates unchanged while Canada is anticipated to hike. Any hikes and/or hawkish statements could favor the non-dollar currencies including the euro.

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A look at the “EUR/USD” chart history for the past year does not reveal any hints of where it might head either:

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Good day ladies and gents. Well, it’s been a pleasant couple of months or even years for the Japanese yen bulls. As you can see, the USDJPY has sunk for 4 consecutive months in a row! It’s actually been on a downward slope since the last quarter of 2007! Nice. You see, the pair was running at a high of 124.16 back in 2007. Today, it touched a low of 83.59. That’s a gain of more than 4,000 pips in just three years for the yen over the greenback! The yen bulls would be celebrating with their sakes up high by now. Kombei! Still, things look even rosier for them as the USDJPY is poised for another drop. Just recently, the pair has fallen below it’s 2009 low. Given this, the next support that I see from the technical side of things is its previous low at 80.43 which was set way back in April 1995. If the yen continues to move up over the USD, then the pair would more likely revisit the mentioned all-time low.

The yen has been getting much favor from investors due to the recent weakness in the global equities markets. The market perceives the yen, aside from the greenback, as a “safe” currency due to its ultra low interest rate of 0.10%. Basically, Japan is lending out free money just to encourage lending and spending. Note also that Japan is the number three biggest country in the world. On top of that, like the US Fed, the Bank of Japan, has the capacity to just print more money to service their debt. So when there is risk aversion, the market tends to divert their funds to the safety of the yen and away from the higher yielding assets. And between the USD and the JPY, the latter is still perceived as the more safe given its lower interest rate.

Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa have been trying to verbally intervene in the markets by saying that they would start preventing the yen’s rapid appreciation. The market, however, called their bluff as evidenced by the ongoing rise of the currency. Remember that the BOJ has expanded again its loan program by 10 trillion yen on top of the 920 billion yen stimulus of the Japanese government to encourage consumption. Naturally, the yen should weaken given the increase in money supply but it did the opposite as it continued to strengthen. As of now, it appears the the overall market forces has the better say and power on the valuation of the yen than the BOJ itself. So if the global situation worsens ans and say the US market goes into a double dip, then the yen would more likely benefit some more.

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Good day to you my Forex friends! Here’s an update on the EURUSD or the fiber as what they call it on Wall Street. The last time I covered the pair (please see my previous post here), it had just broken down from a head and shoulders formation. Since then, the pair has rallied to form what appears to be a rising wedge pattern. In case you do not know, a wedge is generally a continuation pattern as it just represent a short term rebound in prices. Such rally could be due to profit taking or short covers. At present, the pair is encountering some resistance at the neckline of the head and shoulders. If it’s unable to move past the neckline and it falls below the support of the rising wedge, it could slip at least back to 1.2600 level. Further weakness could push it all the way down to the previous low at 1.2150.

The highlight of the week for the euro zone will be the the European Central Bank’s monetary policy decision on Thursday (September 2). The ECB is expected to hold its interest rates again at 1.00% following a drop in German yields. 30-year yield, for your information, have dropped to below 3.00%. And despite the “cheap” borrowing costs, inflation at least in Germany remains subdued. In fact, the latest month-over-month German CPI reading reads at 0.00%. With consumption and inflation low, the ECB would likely be a little dovish about its short term forecast on the euro zone’s economy as a whole. Such could then send investors back to the safety of the USD.

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Good day ladies and gents! Here’s my take on the US economy. In today’s feature is actually the daily chart of the Dow Jones Industrial Average or DJIA. For those who do not know, the DJIA or DJI is the stock index of the 3o biggest US companies. The index of course, reflects the present average prices of the included companies. Positive or negative sentiment towards any one of these firms are of course “priced in” in their respective valuation and in the index as a whole. So if these companies do well, then the demand for their shares would increase, thus, increasing their price as well and vice versa. Given this, the index, aside from the S&P 500, can be pretty much be used as a leading barometer of the US’s economy.

Anyway, as you can see from the chart, the index has been rising since it hit a low of 6,470.11 back in March 2009. Last April 26, 2010, it reached a high of 11,258.01, almost doubling its valuation, before cooling down. It seems, however, that the index has already lost its upward momentum. worse, it looks like it is starting to reverse by forming a head and shoulders pattern. If the index breaks out from this pattern and falls below the marked neckline, it could slip all the way somewhere near 8,000.00. That’s a drop of at least 2,000 points from the current market price so beware! A breakdown from the pattern could indicate that the US is back in the bear market again – a double dip recession I should say.

Recent economic data in the US are far from satisfactory. Both existing and new home sales have been down for the last 2 months with them even falling below the market consensus. Core durable goods orders have also fallen way short, in fact, it even unexpectedly contracted by 3.8% in July. The manufacturing activity at least in the US’s east side as gauged in the Philadelphia Fed manufacturing index has also been dreadful. the index fall back to -7.7 from 5.1, the first time it touched negative in 12 months. So with lending and consumption still subdued despite the Fed’s low interest rates, perhaps the US government could once again reinstate the tax rebates on big item purchases like cars and houses last year. This could jump start the economy, at least in the spending part, in the very near term. A lack of positive catalyst, however, could only drag the economy into another contraction or recession.

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