EUR/USD Forecast February 3–7

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A pretty hard week has just passed for the Euro fans. The European single currency has got to a loss of 1.35% in front of the US dollar at the closing hour on Friday. During the firs two days EURUSD remained near the opening price. The Euro was helped by a pretty good German IFO Business Climate. It started losing after the FOMC statement which announced another 10B cut in the Quantitative Easing Program. The US dollar started gaining ground.

In the second part of the week the good German Unemployment Change and the Euro Unemployment rate could have helped the single currency if it wasn’t for the Euro Area CPI which came under analysts estimations at 0.7%. The dollar got investors support only because of the FOMC Statement. The economic data published for the USA was mostly under expectations. Continue reading our article to see what should you expect next week.

Economic Calendar

Manufacturing PMIs – Monday. The Spanish PMI scheduled at 08:15 (GMT) surprised the market in January with a 50.8 reading. This month it is expected keep itself above 50 and rise all the way to 51.3. The Italian PMI scheduled at 08:45 (GMT) has passed the first time above the 50 level in August last year and continued to rise all the way to 53.3 in January this year. For Monday it is expected to be 54.2. The Euro Area Manufacturing PMI it expected at 9:00 (GMT) and it is expected by the analysts to be around 53.9.

Spanish Unemployment Claims – Tuesday 08:00 (GMT). Spain has the second highest unemployment rate in the Euro Area but the last two jobless claim reports have been more than expected. In January the claims have dropped with 107.6K and next week the markets expects another 21.3K drop.

Services PMIs – Wedneday. Spanish Services PMI is scheduled at 08:15 (GMT) and expected 55.3. The last three publications have been surprisingly good. The Italian Services PMI is awaited at 08:45 (GMT) and expected 48.2. In December and January fell under 50 and disappointed the market. The Euro Area Final Services PMI is scheduled at 09:00 (GMT) and it is expected 51.9. In September last year this indicator managed to get above the 50 level signaling optimism among top managers.

Euro Area Retail Sales – Wednesday 10:00 (GMT). In November sales dropped with 0.6% while expectations were of a 0.3% drop. The fall continued in December, but in January surprised with a 1.4%. For next week it is expected to drop with 0.7%.

German Factory Orders – Thursday 11:00 (GMT). In January the German Factory Orders rose with 2.1% after a month before registered a drop of 2.2%. For Thursday it is expected to add 0.3%.

Euro Zone Rate Decission – Thursday 12:45 (GMT). The ECB is expected to maintain the minimum bid rate for the Euro Area at 0.25%. At the press conference which could be the highlight of the week, scheduled at 13:30 (GMT) they might say that no change will be done for the moment to the monetary policy. But as the German and Euro Area CPIs are falling, Mario Draghi, the Central Bank’s president, might say something about negative rates. This couls send the Euro even lower, but after all this is expected to help inflation and the European economy.

German Industrial Production – Friday 11:000 (GMT). The week will end with a last German economic indicator, the industrial production. It had a fell of 1.2% in December, but it was corrected by the 1.9% gain from January. On Friday it is expected to add about 0.5%.

These are the most important releases scheduled for next week for the Euro Area, but to be better prepared take a look on the US economic releases.

Monday: ISM Manufacturing PMI – Exp.53.8;

Tuesday: Factory Orders – Exp. -1.1%;

Wednesday: ADP Non-Farm Employment Change – Exp. 191K; ISM Non Manufacturing PMI – Exp. 53.8; FOMC Member Plosser Speaks;

Thursday: Trade Balance – Exp. -35.8B; Unemployment Claims – Exp. 334K;

Friday: Non-Farm Employment Change – Exp. 185k; Unemployment Rate – Exp.6.7%.

As you can see it will be a full week. With very important releases for both Euro Area and United States. The expectations are mostly pressuring the Euro. At its current rate it might not be of use for an economic recovery for Europe so the ECB might force a negative rate. On the other hand the eyes will also be on the Non-Farm Payrolls and the Unemployment Rate.

Technical View


Support: 1.3400;

Resistance: 1.3800;


Last week I said that I was expecting a retest on the upper line of the Falling Wedge. The USD did gain, but much more than anticipated. The 1.35% send the EURUSD at a new low. At this point the price hit an important zone around 1.3500. Here we can see the trend line of the up channel and the rejection line for the latest down channel. I don’t think that it is enough to maintain the price. The next important support level sits at 1.3400. We have ahead an important week that could be very interesting.


Support: 1.3487, 1.3450, 1.3400;

Resistance: 1.3506; 1.3586, 1.3639;


On the lower time frame the price has respected our scenario and every drawn level. The trend is clearly down, but on the short time I would be very attentive at a pullback. The 24 RSI has been in the oversold area and might signal a bullish move. A break above the local resistance, 1.3506, could confirm the up move. On the other side if the price will drop under the current low, I would be very attentive at a possible divergence drawn on the RSI.

Bullish or Bearish

This week again I can say that I am bullish on the US dollar on the medium term. Both fundamental and technical analysis shows that the price is set to go lower for the EURUSD. In the first part of the week I believe that could be room for a short rally, as a corrective move for the current down trend. After the ECB monetary policy and press conference the Euro might continue to lose ground so short positions are favored.


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GOLD: Turns Lower, Set To Extend Weakness

GOLD: Turns Lower, Set To Extend Weakness

GOLD: With GOLD failing to hold above the 1,267.75 level, its Dec 10 2013 high and turning lower the past week, further decline is likely in the new week. Support comes in at the 1,231.48 level. Further down, support resides at the 1,218.35 level, representing its Jan 08’2014 low. This level must hold to prevent the commodity from returning to the 1,182.33 level, its Dec 31’2013 low. However, if that level is violated it will turn attention to the 1,150.00 level followed by the 1,100.00 level. Conversely, a return above the 1.279.08 level and its declining trendline resistance is required to annul its present bear pressure and trigger further upside towards the 1,300.00 level where a violation if seen will turn focus to the 1,350.00 level. Further out, resistance stands at the 1,400.00 level, its psycho level. All in all, GOLD remains biased to the downside medium term.

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EURUSD: Risk Points To The Downside, Set To Test The 1.3400 Level

EURUSD: With EUR reversing its previous week gains and returning below its rising trendline, further decline is envisaged in the days ahead. Support comes in at the 1.3400 level, representing its psycho level where a breach will aim at its weekly 200 ema at the 1.3346 level. Further down, support comes in at the 1.3300 level where a break will aim at the 1.3250 level and possibly lower towards the 1.3200 level. Its weekly RSI is bearish and pointing lower supporting this view. On the other hand, resistance resides at the 1.3550 level but EUR will have to break and hold above the 1.3716 level to annul its bear threats and trigger its upside offensive now on hold. Further out, resistance comes in at the 1.3800 level. All in all, EUR remains biased to the downside on further bear threats.

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Monetary Policy Week in Review – Jan 27-31, 2014: India, Turkey, S.Africa raise rates as Fed again trims purchases

    Surprise interest rate hikes by Turkey, India and South Africa, which boosted their credibility, dominated global monetary policy last week as financial markets continued to adjust to the U.S. Federal Reserve’s gradual withdrawal of free money.
    After five years of pumping money into the U.S. and global economy, the Fed last week took another step toward normalizing monetary policy by trimming its purchases of Treasury bonds and mortgage-related debt by a further $10 billion to $65 billion a month and held out the prospect of similar reductions in coming months.
    But the prospect of tighter liquidity, against the backdrop of an improving U.S. economy, has triggered major swings in global asset prices, including sharp falls in the currencies of many emerging markets that used to benefit from easy money seeking a high return.
    The surprisingly sharp reaction of financial markets to a process that the Fed first flagged in May 2013 illustrates the unpredictable and tumultuous way that financial markets often re-price risks and force the hands of central banks.
    Last week started off with the Reserve Bank of India (RBI) surprising markets by raising its policy rate by 25 basis points to 8.0 percent, making good on its promise from last month to act if there wasn’t a “significant reduction” in inflation.
    Then the Central Bank of the Republic of Turkey (CBRT) shook off months of dithering and fine-tuning of its liquidity operations, by reverting to a simpler policy framework and raised its one-week repo rate by 550 basis points to 10 percent. While the CBRT was expected to raise rates, the size of the hikes surprised markets.
    The South African Reserve Bank (SARB) delivered the third surprise of the week by raising its repo rate by 50 basis points to 5.5 percent in a move to head off future inflationary pressures from the declining rand.
    The initial reaction of currency markets, fearing contagion and seeking safe haven, was to reject the three rate rises and any immediate benefit to the currencies of those three countries was soon lost.
    But by the end of the week markets had settled down, with the result that India’s rupee ended 0.4 percent higher on the week against the U.S. dollar, Turkey’s embattled lira had risen 3.0 percent while South Africa’s rand was only marginally lower by 0.3 percent.
    But market volatility was widespread and emerging market currencies were hit across-the-board as global investors treated them with one broad brush.
    Russia’s rouble was hit and the central bank promised to intervene if the rouble strays outside its target corridor, Costa Rica’s central bank intervened to dampen the fall of its colon currency, Croatia’s central bank sold euros to ease pressure on its kuna currency and Romania’s central bank sold euros to support the leu .
    As if investors’ nerves weren’t already frayed from sharp price swings, a spat over the lack of international policy cooperation erupted between the governor of India’s central bank and U.S. central bankers.
    Raghuram Rajan, the governor of the RBI who has been applauded for his decisions since taking over the reins in September, said international monetary cooperation had broken down and appealed to the U.S. to take into account how its policies affect other nations.
    But Rajan’s appeal fell on deaf ears, with Richard Fisher, the outspoken president of the Dallas Fed, rejecting the notion that the U.S. Fed should conduct its policy as if it were the world’s central bank because the Fed’s only mandate is to fulfill the mission that the U.S. Congress has set and other nations “have to figure out” how to deal with their own issues.
    What makes this public tit-for-tat slightly unusual is that it involves central bankers, who normally cooperate in a collegial manner behind the scenes, rather than politicians, such as Brazil’s finance minister Guido Mantega, who coined the term of “currency wars” in 2010.
     Rajan is hardly the first, nor will he be the last to object to the spillover effects on emerging markets from changes to U.S. monetary policy. But given his past as chief economist of the International Monetary Fund (IMF) and as professor of finance at the University of Chicago, Rajan’s criticism of the current U.S.-dominated international financial system carries weight and should be taken seriously.
    Through the first five weeks of this year, policy rates worldwide have been raised four times as four of Morgan Stanley’s so-called “Fragile Five” (Brazil, Turkey, India and South Africa) have taken action. So far Indonesia, the fifth member of the group, has seen its rupiah hold up during the currency turmoil, possibly because it resolutely raised rates by 175 basis points last year.
    Rate rises have accounted for 9.7 percent of this year’s 41 policy decisions by the 90 central banks followed by Central Bank News.
    In contrast, policy rates have been cut five times, or 12.2 percent of this year’s policy decisions.



COUNTRY MSCI      NEW RATE            OLD RATE         1 YEAR AGO
BANGLADESH FM 7.75% 7.75% 7.75%
ISRAEL DM 1.00% 1.00% 1.75%
INDIA EM 8.00% 7.75% 7.75%
TURKEY  EM  10.00% 4.50% 5.50%
UNITED STATES DM 0.25% 0.25% 0.25%
MALAYSIA EM 3.00% 3.00% 3.00%
SOUTH AFRICA EM 5.50% 5.00% 5.00%
NEW ZEALAND DM 2.50% 2.50% 2.50%
MOLDOVA 3.50% 3.50% 4.50%
FIJI 0.50% 0.50% 0.50%
ANGOLA 9.25% 9.25% 10.00%
MEXICO EM 3.50% 3.50% 4.50%
COLOMBIA EM  3.25% 3.25% 4.00%
TRINIDAD & TOBAGO  2.75% 2.75% 2.75%
ZAMBIA 9.75% 9.75% 9.25%

    This week (Week 6) seven central banks will be deciding on monetary policy, including Australia, Romania, Poland, the Philippines, the United Kingdom, the Eurosystem (i.e. the European Central Bank) and the Czech Republic.

AUSTRALIA DM 4-Feb 2.50% 3.00%
ROMANIA FM 4-Feb 3.75% 5.25%
POLAND EM 5-Feb 2.50% 3.75%
PHILIPPINES EM 6-Feb 3.50% 3.50%
UNITED KINGDOM DM 6-Feb 0.50% 0.50%
EUROSYSTEM DM 6-Feb 0.25% 0.75%
CZECH REPUBLIC EM 6-Feb 0.05% 0.05%


Why is the Fed Tapering?

Paul Craig Roberts is back with another excellent piece explaining why the FED is tapering and how this is impacting gold prices. I think we are at or near a bottom in precious metals and will be buying on any breakout above $1,260. Whether we see this breakout in the next few weeks, during Summer or later in the year, I expect gold and silver prices to end 2014 significantly higher than where they started the year.On January 17, 2014, we explained “The Hows and Whys of Gold Price Manipulation.
In former times, the rise in the gold price was held down by central banks selling gold or leasing gold to bullion dealers who sold the gold. The supply added in this way to the market absorbed some of the demand, thus holding down the rise in the gold price.

As the supply of physical gold on hand diminished, increasingly recourse was taken to selling gold short in the paper futures market. We illustrated a recent episode in our article. Below we illustrate the uncovered short-selling that took the gold price down today (January 30, 2014).

When the Comex trading floor opened January 30 at 8:20AM NY time, the price of gold inexplicably plunged $17 over the next 30 minutes. The price plunge was triggered when sell orders flooded the Comex trading floor. Over the course of the previous 23 hours of trading, an average of 202 gold contracts per minute had traded. But starting at the 8:20AM Comex, there were four 1-minute windows of trading here’s what happened:

8:21AM: 1766 contracts sold
8:22AM: 5172 contracts sold
8:31AM: 3242 contracts sold
8:47AM: 3515 contracts sold

gold manipulation

Over those four minutes of trading, an average of 3,424 contracts per minute traded, or 17 times the average per minute volume of the previous 23 hours, including yesterday’s Comex trading session.

The yellow arrow indicates when the Comex floor opened for gold futures trading. There was not any news events or related market events that would have triggered a sell-off like this in gold. If an entity holding many contracts wanted to sell down its position, it would accomplish this by slowly feeding its position to the market over the course of the entire trading day in order to avoid disturbing the price or “telegraphing” its intent to sell to the market.

Instead, today’s selling was designed to flood the Comex trading floor with a high volume of sell orders in rapid succession in order to drive the price of gold as low as possible before buyers stepped in.

The reason for this is two-fold: Driving down the price of gold assists the Fed in its efforts to support the dollar, and the Comex is running out of physical gold available to be delivered to those who decide to take delivery of gold instead of cash settlement.

The February gold contract is subject to delivery starting on January 31st. As of January 29th, 2 days before the delivery period starts, there were 2,223,000 ounces of gold futures open against 375,000 ounces of gold available to be delivered. The primary banks who trade Comex gold (JP Morgan, HSBC, Bank Nova Scotia) are the primary entities who are short those Comex contracts. Typically toward the end of a delivery month, these banks drive the price of gold lower for the purpose of coercing holders of the contracts to sell. This avoids the problem of having a shortage of gold available to deliver to the entities who decide to take delivery. With an enormous amount of physical gold moving from the western bank vaults to the large Asian buyers of gold, the Comex ultimately does not have enough gold to honor delivery obligations should the day arrive when a fifth or a fourth of the contracts are presented for delivery. Prior to a delivery period or due date on the contracts, manipulation is used to drive the Comex price of gold as low as possible in order to induce enough selling to avoid a possible default on gold delivery.

Following the taper announcement on January 29, the gold price rose $14 to $1270, and the Dow Jones Index dropped 100 points, closing down 74 points from its trading level at the time the tapering was announced. These reactions might have surprised the Fed, leading to the stock market support and gold price suppression on January 30.

Manipulation of the gold price is a foregone conclusion. The question is: why is the Fed tapering? The official reason is that the recovery is now strong enough not to need the stimulus. There are two problems with the official explanation. One is that the purpose of QE has always been to support the prices of the debt-related derivatives on the balance sheets of the banks too big to fail. The other is that the Fed has enough economists and statisticians to know that the recovery is a statistical artifact of deflating GDP with an understated measure of inflation. No other indicator–employment, labor force participation, real median family income, real retail sales, or new construction–indicates economic recovery. Moreover, if in fact the economy has been in recovery since June 2009, after 4.5 years of recovery it is time for a new recession.

One possible explanation for the tapering is that the Fed has created enough new dollars with which to purchase the worst part of the banks’ balance sheet problems and transfer them to the Fed’s balance sheet, while in other ways enhancing the banks’ profits. With the job done, the Fed can slowly back off.

The problem with this explanation is that the liquidity that the Fed has created found its way into the stock and bond markets and into emerging economies. Curtailing the flow of liquidity crashes the markets, bringing on a new financial crisis.

We offer two explanations for the tapering. One is technical, and one is strategic.

First the technical explanation. The Fed’s bond purchases and the banks’ interest rate swap derivatives have made a dent in the supply of Treasuries. With income tax payments starting to flow in, fewer Treasuries are being issued to put pressure on interest rates. This permits the Fed to make a show of doing the right thing and reduce bond purchases. As a weakening economy becomes apparent as the year progresses, calls for the Fed to support the economy will permit the Fed to broaden the array of instruments that it purchases.

A strategic explanation for tapering is that the growth of US debt and money creation is causing the world to turn a jaundiced eye toward the US dollar and toward its role as world reserve currency.

Currently the Russian Duma is discussing legislation that would eliminate the dollar’s use and presence in Russia. Other countries are moving away from the dollar. Recently the Nigerian central bank reduced its dollar reserves and increased its holdings of Chinese yuan. Zimbabwe, which was using the US dollar as its own currency, switched to Chinese yuan. The former chief economist of the World Bank recently called for terminating the use of the dollar as world reserve currency. He said that “the dominance of the greenback is the root cause of global financial and economic crises.” Moreover, the Federal Reserve is very much aware of the flight away from the dollar into gold, because it is this flight that causes the Fed to manipulate the gold price in order to hold it down and in order to be able to free up gold for delivery.

The Fed knows that the ability of the US to pay its bills in its own currency is the reason it can stand its large trade imbalance and is the basis for US power. If the dollar loses the reserve currency role, the US becomes just another country with balance of payments and currency problems and an inability to sell its bonds in order to finance its budget deficits.

In other words, perhaps the Fed understands that a dollar crisis is a bigger crisis than a bank crisis and that its bailout of the banks is undermining the dollar. The question is: will the Fed let the banks go in order to save the dollar?

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A Turning Point in Junior Gold Stocks?

By Doug Hornig, Senior Editor, Casey Reasearch

It’s not exactly news that gold mining stocks have been in a slump for more than two years. Many investors who owned them have thrown in the towel by now, or are holding simply because a paper loss isn’t a realized loss until you sell.

For contrarian speculators like Doug Casey and Rick Rule, though, it’s the best of all scenarios. “Buy when blood is in the streets,” investor Nathan Rothschild allegedly said. And buy they do, with both hands—because, they assert, there are definitive signs that things may be turning around.

So what’s the deal with junior mining stocks, and who should invest in them? I’ll give you several good reasons not to touch them with a 10-foot pole… and one why you maybe should.

First, you need to understand that junior gold miners are not buy-and-forget stocks. They are the most volatile securities in the world—”burning matches,” as Doug calls them. To speculate in those stocks requires nerves of steel.

Let’s take a look at the performance of the juniors since 2011. The ETF that tracks a basket of such stocks—Market Vectors Junior Gold Miners (GDXJ)—took a savage beating. In early April of 2011, a share would have cost you $170. Today, you can pick one up for about $36… that’s a decline of nearly 80%.

There are something like 3,000 small mining companies in the world today, and the vast majority of them are worthless, sitting on a few hundred acres of moose pasture and a pipe dream.

It’s a very tough business. Small-cap exploration companies (the “juniors”) are working year round looking for viable deposits. The question is not just if the gold is there, but if it can be extracted economically—and the probability is low. Even the ones that manage to find the goods and build a mine aren’t in the clear yet: before they can pour the first bar, there are regulatory hurdles, rising costs of labor and machinery, and often vehement opposition from natives to deal with.

As the performance of junior mining stocks is closely correlated to that of gold, when the physical metal goes into a tailspin, gold mining shares follow suit. Only they tend to drop off faster and more deeply than physical gold.

Then why invest in them at all?

Because, as Casey Chief Metals & Mining Strategist Louis James likes to say, the downside is limited—all you can lose is 100% of your investment. The upside, on the other hand, is infinite.

In the rebound periods after downturns such as the one we’re in, literal fortunes can be made; gains of 400-1,000% (and sometimes more) are not a rarity. It’s a speculator’s dream.

When speculating in junior miners, timing is crucial. Bear runs in the gold sector can last a long time—some of them will go on until the last faint-hearted investor has been flushed away and there’s no one left to sell.

At that point they come roaring back. It happened in the late ’70s, it happened several times in the ’80s when gold itself pretty much went to sleep, and again in 2002 after a four-year retreat.

The most recent rally of 2009-’10 was breathtaking: Louis’ International Speculator stocks, which had gotten hammered with the rest of the market, handed subscribers average gains of 401.8%—a level of return Joe the Investor never gets to see in his lifetime.

So where are we now in the cycle?

The present downturn, as noted, kicked off in the spring of 2011, and despite several mini-rallies, the overall trend has been down. Recently, though, the natural resource experts here at Casey Research and elsewhere have seen clear signs of an imminent turnaround.

For one thing, the price of gold itself has stabilized. After hitting its peak of $1,921.50 in September of 2011, it fell back below $1,190 twice last December. Since then, it hasn’t tested those lows again and is trading about 6.5% higher today.

The demand for physical gold, especially from China, has been insatiable. The Austrian mint had to hire more employees and add a third eight-hour shift to the day in an attempt to keep up in its production of Philharmonic coins. “The market is very busy,” a mint spokesperson said. “We can’t meet the demand, even if we work overtime.” Sales jumped 36% in 2013, compared to the year before.

Finally, the junior mining stocks have perked up again. In fact, for the first month of 2014, they turned in the best performance of any asset, as you can see here:

(Source: Zero Hedge)

The writing’s on the wall, say the pros, that the downturn won’t last much longer—and when the junior miners start taking off again, there’s no telling how high they could go.

To present the evidence and to discuss how to play the turning tides in the precious metals market, Casey Research is hosting a timely online video event titled Upturn Millionaires next Wednesday, February 5, at 2:00 p.m. Eastern.


register here for free







USDCHF: Risk Builds Up On The 0.9156 Level.

USDCHF: With the pair reversing most of its previous week losses to close higher the past week, immediate risk remains to the upside. Resistance resides at the 0.9156 level, its Jan 21 2014 high. Further out, the 0.9200 level, its psycho level comes in as the next upside objective where a violation will aim at the 0.9249 level, its Nov 07’2013 high. Its weekly RSI is bullish and pointing higher suggesting further strength. On the downside, the risk to this analysis will be a return to the 0.8902 level, its Jan 24 2014 low. A cut through here will turn focus to the 0.8850 level and subsequently lower towards the 0.8800 level, its psycho level. This downside view is consistent with its broader medium term downtrend triggered from the 0.9838 level. All in all, the pair remains biased to the downside medium term though seen recovering.

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