Technical Analysis for Major Currencies

By (Dublin) – The US dollar weakened against most of its peers last week as speculation Ben S. Bernanke would signal stimulus increased in the market. This led to the greenback closing lower against major currencies. However, according to performance charts, the dollar crosses were little changed on Friday last week. Here is a short analysis of major pairs and the forecast for the week ahead.

GBP/USD: this pair opened the week at 1.5800 and dropped to a low of 1.5754 as the support level at 1.5750 held firm. As speculations of QE3 rose, the pound gained against the dollar, pushing the pair up to 1.5895 but could not break the resistance line at 1.59. The pair then dropped a little to close the week at high of 1.5858.  This week, the pair is expected to trade within the range of 1.5846 and 1.5851. The technical levels to look at include resistance levels at 1.6032, 1.5963, and 1.5914. Support levels include 1.5797, 1.5729 and 1.5680. Our outlook for the week is neutral; hence we expect the pair to trade within range.

USD/JPY: the pair has traded below the 78.80 level as the dollar lost ground against major currencies on speculation of QE3. This week the cross is expected to be bearish as investors are expected to enjoy the safety of the yen. The pair will trade at the pivot level of 78.39; and the resistance levels to keep your eyes on include the 79.01, 78.81, and 78.59. Support levels include 78.17, 77.97, and 77.75. Our outlook for the week is bearish as the yen enjoys the safe haven demand.

USD/CHF: the pair opened the week at 0.9603 and made an attempt upward to reach a high of 0.9635. However, as speculation of QE3 in US increased, the pair dropped to a low of 0.9502 before improving slightly to close the week at 0.9542. We expect this pair to trade within the range of 0.9552 and 0.9554 this week. However, some of the resistance lines that might come in to play include resistance at 0.9716, 0.9664, and 0.9606. Support lines are 0.9497, 0.9444 and 0.9387.

EUR/USD: the cross has maintained a very narrow trading range as the market reacted to some positive report from euro zone and the euro enjoyed some dollar weakening to hold its gains made the previous week. The pair traded below 1.2587 line and above the support line at 1.2520. This week, the pair has its pivot at 1.2569 and 1.2571. Resistance lines to look at are 1.2789, 1.2713, and 1.2645, while support levels include 1.2501, 1.2425, and 1.2357.


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Australian Resources Boom Curse…or Industrial Renaissance?


Today’s Money Morning is about Dutch Disease. How do you save and make money from the Australian economy’s coming boom, bubble and bust?

But first, someone should let Federal Resources Minister Martin Ferguson know that the mining boom need not be ‘over’. Here’s what he said: ‘The commodity price boom is over. Anyone with half a brain knows that.’

Finance Minister Penny Wong disagrees. ‘No, I think the mining boom has got a long way to run.’ We’re not sure which half of her brain she’s using.

But Wong may be correct on this. Never mind the plunging iron ore price, which has halved over the last twelve months. And don’t worry about BHP’s abandoned Olympic Dam plans.

The Italians have a sure fire solution to keeping the mines ticking over. All you need is around 350 kilograms of explosives per 100 miners and the mine need never shut down. Here is how the mining stimulus plan works:

‘Up to 100 Sardinian miners armed with hundreds of kilograms of explosives have barricaded themselves nearly 400 meters underground in Italy’s only coal mine to put pressure on the Rome government to protect its survival.’

Like sardines in a can…

This redefines digging a hole and sticking your head in it. If you’re wondering how on earth such a stimulus plan might work, consider that the same strategy worked for the Sardinians in 1984, 1993 and 1995. At least the Italians want to work. Here in Melbourne, a protest turned violent when police allowed several construction workers to continue working instead of joining the protest. How dare they work!

Report Sends Warning on Australian Economy

Anyway, the goose that lays the golden egg may be cooked. A report by research firm Variant Perception has caused some controversy. No longer are Australia’s problems just the ramblings of crazed Money Morning editors. Here’s what analyst Jonathan Tepper had to say about Australia’s fake prosperity:

‘Australian growth has been dependent on two huge bubbles: a domestic housing market that is one of the most overvalued in the world and a reliance on the Chinese fixed asset investment craze.’

Why is a housing bubble fake prosperity? Because house prices can tumble. A huge amount of wealth you thought you had can disappear very quickly. All it takes is for house buyers to refuse to go into vast amounts of debt.

And that’s even more likely to happen now that the other part of Australia’s fake prosperity is in doubt: the resources boom. It’s really a resource curse. Jonathan Tepper says Australia will suffer from Dutch Disease. In fact, he says we’re a ‘classic case’.

What’s Dutch Disease? It’s when the resources sector dominates an economy, and that causes other parts of the economy to flounder. So when the resources boom ends, only the floundering bits remain.

You can probably guess how Dutch Disease got its name. But it’s a surprisingly recent name coined by the Economist in 1977 after the Netherlands discovered vast natural gas fields. Sound familiar?

So how do you make and save money from Australia’s Dutch Disease? Well, the sickness plays out in the following way. First there is a crash in the economy as the booming part takes a big hit. That’s started already. Resource companies have cancelled projects and Fortescue Metals has lost 40% of its share price since May.

The Australian Dollar About to Fall?

Next up, the currency crashes. If you think the first part of the disease was bad, this will really hit you. According to Tepper’s report Australia has a vastly overvalued currency and a ‘terrible international investment position’. But it gets worse. Here’s why the two are set to cut your retirement savings painfully.

The international investment position Tepper refers to is the ratio of Aussie investment overseas compared to foreign investment here. The reason it matters so much is that if foreigners get spooked and pull their money out of Aussie investments, it will hit Aussie asset prices, including the Australian dollar.

And even though Aussies invest abroad, we don’t have enough overseas investments to offset the plunge.

Australia isn’t alone in this. Other countries with terrible international investment positions include New Zealand and three of the famous PIIGS caught up in the European sovereign debt crisis – Greece, Spain and Portugal.

Tepper specifically mentions that Australian government and bank debt owned by foreigners resembles that ‘seen in the European periphery’.

Source: IMF

That’s not all; Tepper also says on every count the Australian dollar is overvalued. Even if foreigners aren’t spooked and don’t sell their Aussie assets, the Australian dollar can still plunge. If the resources crutch is kicked from underneath our dollar, that would leave the Australian economy without a major export.

But it’s the Australian dollar’s plunge that provides the hidden opportunity. It’s the third part of Dutch Disease. You see, exporters would benefit from being able to sell their goods for lower prices. More on this in a moment. But first, which are the investments most at risk? According to Tepper it’s the miners and the Australian banks.

Tepper says investors should ‘Buy CDS in big four banks.‘ That essentially means betting on their default risk rising. For your typical punter, it means you should avoid investing in the Australian banks. Even if they do have a juicy dividend yield.

As for Australian mining stocks, the real worry is the miners that are feeding China’s investment bubble. That’s iron ore, copper and other industrial metals. If you’re not convinced that China’s zombie economy is in for a hard landing crony capitalism style, you haven’t seen Greg Canavan’s presentation yet.

Where to Make Money Afterwards

Now for the opportunities to make money. The third stage of Dutch Disease is the recovery. Manufacturers and exporters tend to make a dramatic recovery under favourable exchange rates. And once the miners stop stealing all the capital and talent, it flows into other industries.

Exporters like Cochlear (ASX:COH) caught our eye this time last year. We wrote about the company in Australian Wealth Gameplan. It’s up around 25% since, without including dividends. Meanwhile, the ASX200 is back to where it was.

But Greg Canavan has just added an even better sounding opportunity to his watch list. It’s an exporter as well. And it produces something our office consumes every day. It’s not strictly industrial, but the same factors are at play.

Best of all, the good produced is seasonal, which means exports to the northern hemisphere. And investors have badly beaten down the stock, due to an unfortunate but temporary development. In other words, it’s cheap, it exports and it produces real stuff. There are plenty of similar companies on the ASX.

Now all we need is a buying opportunity. Bring on the crash!

Nick Hubble
Editor, Money Morning

Related Articles

Australian Housing Hung, and Soon to be Drawn and Quartered

Take Advantage of the High Australian Dollar While You Can

Australian Resources Boom Curse…or Industrial Renaissance?

Don’t Bet on Greece Staying in the Euro


At the start of this year, all eyes were on Greece.

First, there was the drama over whether bondholders would accept large haircuts. Next, there were the elections and the failure to get a coalition agreed. Finally, there was the second election, which the anti-austerity Syriza came close to winning.

At each stage, there were claims that a Greek exit from the euro would be a disaster for the world economy. The Confederation of British Industry feared it would be like “an earthquake happening in Europe” that would hit the UK hard.

Yet now Greece has virtually vanished from the headlines. So what’s changed?

In three words: Spain and Italy. The crisis has spread to these two much bigger economies: Italy has been well described as “too big to fail, too big to save”.

With Mario Draghi claiming he’d do “whatever it takes” to save the euro, it’s easy to assume that the desire to save Spain and Italy will end up encompassing Greece too.

We’re not so sure. A Greek exit could arrive much quicker than anyone expects. The good news is that this could be just what both Greece and the wider European economy need.

Greece Wants More Time

To comply with the conditions of its bail-out, the Greek government is supposed to be meeting targets for cutting its debt and reforming its economy. Trouble is, these targets relied on the Greek economy recovering quickly. Needless to say, that hasn’t happened.

So now, to have any hope of meeting its targets, Athens would have to make much bigger spending cuts than it had planned. Yet this would hit growth even harder in the short-run.

Given that the latest figures show Greek unemployment has risen to a fresh record of 23.1% – more than twice the eurozone average – this is not the kind of thing that voters will put up with. So the Greek government has demanded more time – two years more, in fact – to meet the targets.

Trouble is, Greece’s creditors agreed to distribute the bail-out money in stages. This gives them the power to quickly cut off funds if Greece isn’t sticking to the terms of the deal. With credit market access all but shut, a cut-off would see Greece quickly forced to leave the single currency and default.

Up until now, Athens has got its way. But it might have reached the end of the line this time. Although its request will be formally considered at a meeting next month, both the French and German leaders have said that they will oppose any changes.

German opposition in particular runs high. Indeed, Volker Kauder, the leader of the Christian Democrats in the Bundestag, claims that an extension would be the same as giving the Greeks more money (which it is, to be fair).

A bigger clue is in the fact that the talk is now of how a Greek exit can best be handled, rather than prevented. The FT reports, for example, that the German finance ministry has been meeting for some time to plan a response. If Berlin was desperate to keep Greece in, it wouldn’t be holding such meeting, let alone leaking its existence to the media.

The Tipping Point for the Eurozone

This may seem rather downbeat. However, Greece leaving the euro would in fact be a good thing in the long run, for both the country and the eurozone. Returning to the drachma would – after the initial shock – allow the Greeks to boost their struggling economy.

The currency would slide, increasing exports and tourism, while inflation would surge. This would reduce wages in real terms, and make Greece competitive with the rest of Europe. Inflation, and a managed default, would also reduce the debt burden to a more manageable level.

It would also be the catalyst for change that the European Central Bank (ECB) needs. While the ECB has signalled that it may consider some money printing, pushing the plans past opposition from Germany isn’t easy.

A Greek exit would force it to be much more bold. To prevent an outright collapse in the eurozone, it would have to print money to cap bond yields on the larger economies that are in trouble – such as Spain and Italy, not to mention Portugal.

Indeed, a cynic might suggest that a Greek exit would allow German opponents of such money printing to save face, and allow QE to begin. This is because they could say that the worst offender had been forced out of the eurozone, satisfying their concerns about ‘moral hazard’.

As far as investors are concerned, any money-printing by the ECB would be great news for beaten-down European stocks in particular.

Matthew Partridge
Contributing Editor, Money Morning

Publisher’s Note: This article originally appeared in MoneyWeek

From the Archives…

Why There’s No Such Thing as a Floor Price Just the Market Price
31-08-2012 – Kris Sayce

Take Advantage of the High Australian Dollar While You Can
30-08-2012 – Greg Canavan

Smartphone, Dumb Patents
29-08-2012 – Jeffrey Tucker

Find Out if You’re a Speculator, Value Investor or Stock Trader
28-08-2012 – Nick Hubble

Why Green Energy Will Struggle Against a 790,000 Year Habit
27-08-2012 – Kris Sayce

Don’t Bet on Greece Staying in the Euro

GBPUSD stays in a trading range

GBPUSD stays in a trading range between 1.5753 and 1.5911. The price action in the range is likely consolidation of the uptrend from 1.5490. Support is at 1.5753, as long as this level holds, another rise towards 1.6000 could be expected, and a break above 1.5911 could signal resumption of the uptrend. On the downside, a breakdown below 1.5753 will indicate that the uptrend has completed at 1.5911 already, then deeper decline to 1.5400-1.5500 could be seen.


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5 Forex Myths

Forex trading, the exchange of foreign currencies, has become extremely
approachable and therefore popular especially in the online sphere. This
growing popularity led to a plethora of online Forex brokers,
lessons and sometimes misleading information. Here we will review and refute
the most common and confusing myths that surround the Forex market:

Forex is a type of Gambling

Though trading Forex may be risky, but the risk derives from the
changing markets and not from the odds set by the house. Trades who understand Forex market movers and drives can maximize their profits and minimize their
risks and losses.

Trading Forex is Easy                                   

Not all Forex myths describe foreign exchange trading in dark tones;
some of the myths are too positive to be true. Trading Forex isn’t easy as it
requires thorough study of Forex charts and analysis types, understanding of
economic indicators and market movements, and of course experience, self
discipline and motivation are helpful as well.

Stock Trading is like Forex Trading

 Many traders tend to believe that a successful experience in stock
trading will guarantee and immediate success trading Forex. The truth is that
there are many differences between the two financial markets. For example,
stocks usually rise over the long term while currencies are usually traded
within a price channel. (Just imagine the global economy if currencies would go
only on one direction…)

Forex brokers take zero commissions

 This myth has some base in reality ad most Forex brokers don’t take
commissions in the common definition of the word; but the make money on your
bid/ask spread instead. (You don’t expect them to work for free do you?)

Trading Demo Accounts indicates your future success as Forex trader

 Though demo accounts are great practice tools for newbie Forex traders,
your success trading “fake” money won’t necessarily provide an
accurate indication of how well you will success trading your actual money. The
significant psychological difference between trading with “pretend” money
and trading for real makes all the difference.


We hope that the revelation of these Forex myths will help you better understand the Forex market and the way it operates. You can make money trading Forex, but not necessarily by trusting those who promise fast and easy profits.

Best Forex Trading Systems 2012

I am here to discuss about the best forex trading systems. Of course you know what trading systems are and what they do to your forex account. Forex trade systems are strategies or laws that guide your forex transactions. They are like rules that tell you when to enter a market, when to exit and how much to risk and profits to target for.

Now this is quite different from automated trading systems because in that case you depend on robots to do all the work for you while you observe or supervise as the case may be. But forex strategies guide you while you buy or sell currencies at your own risk.

Forex trading systems comes in various types and from various sources so it is difficult to determine the best of several options. What you should bear in mind is that you should do your own diligent research to come out with the best the world can offer. But this is a tedious work considering that there are thousands if not millions out there and a vast majority are not worth the time sorting them out, the reason for this article.

This article presents points to consider when making your choice of trading systems.

Let’s consider point number one. Profitability of the system. Why is this important. Because you are in the business of currency trades and you target to make profits. So a good system should be able to tell you how profitable it will deliver. This is generally calculated in pips per month. This means that a good forex program that promises a certain number of pips per month say 300 for example is telling you exactly what to expect when you use it in your online trading live account. The more the pips per month ratio, the more the profitability of the trading system. You also stand a chance to double your investment in a few months.

Secondly,the historical drawdown of the system. Yes the maximum historical drawdown of a trading system should be considered when making your choice of forex trading programs. It is defined as the largest decrease in cash equity that has happened in the historical past of a forex account,which can be evaluated on a back test or on a live account. It is usually expressed as pips or as a percentage of cash float used when testing out the system. This drawdown is used to compare between different trading systems. You also use the drawdown to determine how much you need to invest in the system.

Another point to consider is the consistency or stability of a system. A forex system strategy with high profitability and income potential without stability is incomplete. What it means here is that you only have winning trades occasionally and periodically. Think about having winning trades once in a month and then the rest of the month you only observe the trend. It makes your trading experience boring. But with a stable and consistent one, you have all it takes to be in the trade regularly and profitably.

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Market Review 31.8.12

Source: ForexYard


The marketplace was relatively quiet during the overnight session, as investors were hesitant to open new positions ahead of an eagerly anticipated speech from Fed Chairman Bernanke today. The one exception was the Australian dollar, which extended its bearish trend due to a slowdown in China’s economy. As Australia’s biggest trading partner, economic data out of China tends to have a big impact on the AUD. The AUD/USD hit a one-month low at 1.0277 last night before staging a slight upward correction. The pair is currently trading at the 1.0305 level.

Main News for Today

Fed Chairman Bernanke Speaks- 14:00 GMT
• Investors have been eagerly awaiting today’s speech to see if the Fed Chairman will hint at new steps to boost the US economic recovery
• If the Fed Chairman does mention any new steps, including a possible fresh round of quantitative easing, riskier currencies like the euro could see significant gains before markets close for the weekend

Read more forex news on our forex blog

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.