Sept. 30 (Bloomberg) — Hong Kong is set to see more visitor arrivals from mainland China during the Chinese National Day holiday week starting Oct. 1, and many will be in search of gold bargains after recent declines in the price of the precious metal. Bloomberg’s Paul Allen reports. (Source: Bloomberg)
Sept. 30 (Bloomberg) — Patrick Bennett, a strategist at Canadian Imperial Bank of Commerce, talks about global currencies. Bennett also discusses Europe’s sovereign debt crisis and China’s economy. He speaks in Hong Kong with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)
Germany’s approval Thursday to increase the size and flexibility of the euro zone’s bailout fund and better than expected U.S. economic data pushed the ERU/USD pair above 1.36 Thursday, though it has pared some of the gains since.
USD – Better than Expected Economic data boosts USD
The USD received a boost Thursday after the release of better than expected Unemployment Claims data as well as Pending Home Sales results. After falling earlier in the day versus riskier currencies following Germany’s approval to the size and flexibility of the euro zone’s bailout fund, which boosted risk appetite, the greenback returned to gains following the release of the US economic data.
For today, traders may be advised to follow the release of the Chicago PMI and Revised UoM Consumer Sentiment as a continuing trend of better than expected economic releases may boost the dollar further versus its counterparts.
EUR – EUR Trades above 1.36 after Germany Votes to Increase Bailout Funding
In midday trade, the single currency was at $1.3620 compared with $1.3544 late Wednesday and at ¥104.47 compared with ¥103.74, boosted by the passage of the amendments to the European Financial Stability Facility in Germany which helped boost risk appetite and supported the common currency. The common currency has lost some steam later in the day as positive economic data from the US boosted the USD.
For today traders should follow general market sentiment as well as economic indicators from the US, a return of risk appetite to the markets may boost the EUR back above 1.36.
JPY – JPY Gains versus Counterparts
JPY saw a reversal of its downtrend mid trading Thursday as global markets roped and risk aversion returned to trading. The Yen gained almost 100 pips versus the GBP and almost 70 pips versus the EUR. Versus the USD the Japanese currency remained mainly in range.
For today, traders are advised to follow economic data from the US and Europe as a continuation of bearish sentiment will likely push investors to safe heaven currencies and boost the Yen further.
Crude Oil – Crude Rallies on Better than Expected US Data
Thursday, light, sweet crude for November delivery was up $1.84, or 2.3%, to $83.05 a barrel on the New York Mercantile Exchange. A drop in U.S. weekly jobless claims and Germany’s vote to approve an expanded euro-zone rescue fund boosted optimism. The prospect of containment of the Euro-zone debt crisis lifted hopes for increase in global oil demand.
Traders are advised to follow the release of economic data from the Euro-Zone and US today as the release of better than expected data will likely boost Oil prices further, possibly towards the $85 a barrel mark.
EUR / USD
The EUR/USD has gone increasingly bullish in the past few weeks, and currently stands at the 1.3615 level. The weekly chart’s Slow Stochastic supports this currency cross to rise further today. This is supported by the daily chart’s Slow Stochastic. Going long with tight stops may turn out to bring big profits today.
GBP / USD
The daily chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, the 8-hour chart’s RSI is already floating in the overbought territory indicating that a bearish correction might take place in the nearest future. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.
USD / JPY
The pair has been range-trading for a while now, with no specific direction. The Daily chart’s Slow Stochastic providing us with mixed signals. The weekly charts do not provide a clear direction as well. Waiting for a clearer sign on the hourlies chart might be a good strategy today.
USD / CHF
The cross has experienced much bullishness last week, and currently stands at the 0.8960 level. There is much evidence in the chart’s oscillators that supports a possible bearish correction today. This is supported by the daily chart’s Slow Stochastic. Going short with tight stops may turn out to bring big profits today.
The Wild Card
Gold prices are once again dropping, and it is currently traded around $1601 per ounce. And now, the daily chart’s Slow Stochastic is giving bullish signals, indicating that gold prices might go up. This might give forex traders a great opportunity to enter a very popular trend.
© 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.
By Taro Hideyoshi
Trader tend to believe that they do not need to address money management until they can prove that a particular trading system will work and they can make money using it. This is the most common areas for serious mistakes by traders and it is a costly mistake.
As I have always mentioned that a sound money management is a component of a complete trading system. So, do not wait to manage your trading money until you can prove that a trading system makes money. Although you can gain profits from the system without managing your trading money but, who know, you might gain much more profits with a proper money management.
Of course, if the trading system is a bad one, even the best way of managing money cannot turn it to be a good one.
It is about expectation (as I explained it in earlier articles). You have to make sure that your trading system must has positive expectation. It means that you know the system, over enough time, will generate a positive result. Since, no money management scheme can mathematically turn a negative expectation into a positive gain.
By saying this, it does mean that you do not need to manage your money properly in trading until you can prove that your trading strategy has a positive expectation. There is little additional risk in applying money management from the beginning instead of not applying it at all.
If you are actually risking your money in market, you most likely to do so with a trading strategy that has a positive expectation and start managing your money from the beginning based on your expected performance. The only reason that traders should not manage their trading money from the beginning is the traders actually expects to lose if that is the case, why trade?
An area of common confusion when money management is concerned is whether particular methods of managing money work on currency trading, or whether they work with futures contract, options, stocks or whatever the market. The answer for the questions is it does not matter whether the market is, managing money is based on one thing only, it is account performance.
Another common question, related to the topic, is whether the money management methods can be used on a particular trading style or trading system. The answer is the same as the answer about the market and for the same reason.
About the Author
Taro is an experience trader who trades in stocks, futures, forex. He strongly focuses on technical analysis, trading systems and money management.
If you would like to find more articles on MetaStock Tutorials, MetaStock Formulas, Trading Systems and Money Management. Please go to MetaStock Trading System.
You would also find the list of recommended books for trading & investing at The Investing Books.
The Banco Naconal de Angola (BNA) has announced plans to introduce a new benchmark interest rate in October this year. The BNA had previously formed a new monetary policy committee in August, and the committee will meet monthly to set the new rate; much in line with global practices. The BNA also plans to introduce a Luanda Interbank Offered Rate (Luibor) according to Bloomberg. Central bank governor, Jose de Lima Massano, said the efforts will “preserve the value of the national currency and the stability of prices in the economy”.
– Welcome to the new world of stock market trading, where no one really knows what is going on. Below is a chart of the S&P500, showing last night’s trading action.
– As you can see the market surged at the open as traders mistakenly thought the German vote to expand the European financial stability fund solves everything. It doesn’t. The S&P then spent the rest of the day in steady decline, falling around three per cent from the peak.
– Then, just after 3 pm, a buyer showed up to ensure the day finished in the black. Just as well too. A one per cent decline on the ‘positive’ German news would not have been a good look.
– Such extreme intra-day volatility is a sign markets are trading in an information vacuum. You can trade the bullish outcome – which is to believe the European Central Bank (ECB), helped by the US dollar swap lines the Fed recently put in place, will flood the markets with liquidity. Or you can trade the bearish outcome – which is to bet on the whole bailout/default thing going pear shaped.
– The end result is in the hands of people who really don’t know what they are doing. That doesn’t inspire a lot of confidence, a feeling reflected in an erratic market.
– But the whole Europe thing is becoming a bit of a bore. While everyone sweats on the Greek outcome, the world economy continues to slow. Doctor copper, as shown in the chart below, is struggling. It’s down nearly 30 per cent from the peak reached in February. Adding impetus to the move, strong volume accompanied the recent sell-off.
– But it’s still got another 15 per cent to fall before it reaches the lows of 2010, which, as you’ll remember, was the point where the market began to discount QEII. Will it be the threshold for QEIII?
– And copper could fall to that level pretty quickly if the slowdown in China gathers pace, which it will. China is at the tail end of an epic credit boom. The tide is now on its way out, exposing many property developers as having precarious finances. This is probably just the start.
– Hong Kong is a good proxy for what is going on in China’s real estate market, so let’s look at what’s happening in Honkers. Below is a three-year chart of the Hang Seng index. It’s not looking pretty. If the China property bubble is only just starting to show some cracks, then this market has much further to fall.
– Which is not great news for Australia. We’ve been riding the China boom for a while now. China’s credit bubble had a major impact on Australia’s post-2008 recovery, terms of trade, strong dollar and high relative interest rate structure.
– If China continues to slow, it will have flow-on effects for Australia’s nominal income growth, which in turn will see interest rates head lower by the end of the year.
– As far as investment strategies go, it could pay to have a look at beaten-down domestic cyclicals – like building materials companies – in advance of lower official interest rates. Commodity producers and mining services companies aren’t likely to gain much support while a China slowdown is in the news.
– But here’s a reason not to get too excited about growth (in any sector) in Australia. Our household debt levels are amongst the highest in the world. A recent ‘working paper’, called ‘The Real Effects of Debt’ released by the Bank for International Settlements (BIS) suggested there were debt thresholds where, once breached, they become damaging to growth.
– Before seeing what the thresholds are, take a look at the table below. It shows the systematic build-up of debt (combining household, corporate and government debt) across developed nations over the past 30 years.
as a percentage of nominal GDP
– Australia’s total debt levels are up there, but not as hefty as the G7′s debt burden (the first block of countries in the table). That’s because our non-financial corporate and government debt levels are pretty good, at 80 per cent and 41 per cent of nominal GDP, respectively.
– Household debt is where we stand out as world-beaters. Australia’s household debt is 113 per cent of nominal GDP, a level only exceeded by Denmark and the Netherlands.
– According to the BIS, 85 per cent is the threshold where debt becomes detrimental to growth. Australia is well beyond that point.
– This suggests a few things:
- When (like now) China slows, the household sector won’t pick up the slack. Without the China boost, Australia could well slip back into recession.
- Banks are facing a low growth environment, something their share price performance has suggested for a while now. Loans for residential property make up the bulk of household debt and these loans sit on the asset side of banks’ balance sheets. So if households rein in their debt levels, it will affect bank growth rates.
- The economy is highly sensitive to interest rates. Because the household sector has such a high debt burden, debt-servicing costs soak up a lot of income. If interest rates fall, the interest rate sensitive areas should get a nice short-term boost.
– But any rally based on an interest rate cut will be purely cyclical. The world’s equity markets, Australia’s included, are in a ‘secular’ bear market. We are now suffering the consequences of decades of excessive debt growth. Total debt levels have grown to such an extent that they are damaging economic growth, not assisting it.
– And the refusal by officials to write off the bad debt and strengthen the global banking system is only making things worse. So make sure you have a ‘bear market’ strategy – plenty of cash, gold and good value, income-paying stocks to get through the next few years with your wealth intact. Because if you invest thinking it’s a bull market, you’ll go backwards.
Money Morning Australia
The market is extremely volatile. An indicator of market volatility, the Volatility Index [WCB: VIX] crept back above 40 on Wednesday. The VIX is anticipating more market upheaval to come.
Why? The standard response you’ll get is ‘because there’s a lot of uncertainty… about the US… Europe… gold… stocks in general‘. But that’s just a symptom.
It’s the governments and central banks creating this uncertainty. You see, they don’t know they’re largely to blame for the world’s economic ills. Or that their attempts to fix matters only makes them worse.
The market has voted. The best way to move forward from the Euro crisis is for Greece to default. Yet the ruling powers are doing almost everything to avoid this fate.
The Americans, led by Tim Geithner, are upping the political pressure on Europe to create a highly leveraged rescue fund. They want to increase the ‘firepower’ of the €440 billion European Financial Stability Fund (EFSF) by having the European Central Bank (ECB) lend against it.
According to The Age, this could create a bailout fund of up to €2 trillion, with the difference made up of loans from the ECB (which would actually be newly printed money).
The Germans had a ‘print your way to prosperity’ mentality at the end of WWI. It led to hyperinflation.
So while they recognise the need to ‘do something’ to avoid another credit crisis, they are reluctant to put their credit on the line to bail out other Eurozone nations.
As a result, investor confidence is shattered.
This is why you’re seeing so much volatility.
So how do you invest in this mess?
Given this environment, it is prudent to continue to scale into the market selectively.
You’ll continue to see large rallies and sell-offs. So move into the market and buy on the down days – try to resist chasing the market on the way up.
You’ll still be rewarded for investing in good value companies in the current environment. But exactly when you’ll receive those rewards is the question. The skill is trying to find companies which are a good business, but they stock value has been beaten down.
The ongoing market volatility will present buying opportunities.
As always it comes down to patience.
Money Morning Australia
GBPUSD’s rise from 1.5327 extended further to as high as 1.5715. Support is at 1.5500, as long as this level holds, uptrend could be expected to continue and the target would be at 1.5800 area. However, a breakdown below 1.5500 will indicate that a cycle top has been formed at 1.5715 on 4-hour chart and the rise from 1.5327 has completed, then the following downward move could bring price back to test 1.5327 previous low support.
Sept. 29 (Bloomberg) — David Blanchflower, a professor at Dartmouth College and Bloomberg Television contributing editor, talks about German lawmakers’ approval of expanding the euro-area rescue fund’s firepower. Blanchflower, speaking with Deirdre Bolton, Erik Schatzker and Dominic Chu on Bloomberg Television’s “InsideTrack,” also discusses the results of a quarterly Bloomberg Global Poll of investors, analysts and traders. (Source: Bloomberg)