The Currency War Big Picture Analysis for Gold, Silver & Stocks

By Chris Vermeulen:

I think you will admit that we are in the middle of one major crazy financial mess.  The part that makes things really crazy is that it’s not just in the United States anymore but rather serious global problem which if not handled properly could change the way we live our lives going forward or possibly even spark some type of war, hopefully things don’t get that crazy… But I do know one thing. Fear is the most powerful force on the planet and people do some crazy things when they are backed into a corner.

Anyways, on a more positive tone… today China decided to help provide more liquidity for the financial system along with the central banks. This news triggered a monster rally in overnight trading making the market gap up sharply at the opening bell. This news did hit the US dollar index hard sending it sharply lower but the question remains “Will today’s news be a one week hiccup in the market?” If Euroland starts printing money it will likely send the dollar higher and stocks lower for 6- 12 months.

Just today I was joking with Kerry Lutz of the Financial Survivor Network about how each country should just give each other country a second chance. Wipe the dept clean and start over knowing this time around exactly how each country truly operates at a financial level allowing everyone to avoid a repeat of this BS. Some countries will get off way better than others because they would get so much dept wiped clean but isn’t it better than years of problems and possibly wars over food, gold, guns, oil and Canadian water? – EH

All joking aside, let’s take a look at the weekly long term charts…

Dollar Index Showing Possible Massive Rally If Euro Starts Printing Money:

I’m sure my off the cuff options/thoughts will cause a stir but I am fine with that. Everyone I talk to is thinking the dollar is about to fall off a cliff while I think it’s very possible that it does just the opposite. Either way I will be looking to benefit from which ever move unfolds.

Weekly Gold Chart:


Weekly Silver Chart:


Weekly SP500 Chart:


Long Term Thoughts:

I would first like to say that tonight’s report is out of my norm. Generally I do not focus on the big picture negative stuff and I like to avoid it for a few reasons… One, it’s just downright depressing to talk and think about. And Second I don’t want to be labelled as one of those “The Sky Is Falling” kinds of guys.

So, that being said I think these charts above show a situation what is very possible to happen in the coming 6-12 months. Keep in mind that my focus is on short term time frames as it allows me to avoid and actually profit from major market moves while providing enough information for my followers to learn technical analysis and trade management. And the obvious idea of not looking too far into the future with a negative outlook…

With headline risk changing the market direction on a weekly basis, this negative outlook could easily change in a couple months. I will recap on the big picture as things unfold in January/February.

Talk to you soon,

By Chris Vermeulen,


Central Banks Buy the Euro Zone Some Time

By ForexYard

The world’s central banks have bought euro zone leaders additional time to come to a political solution after 6 central banks offered increased sources of liquidity. This sparked a rally in equities and the EUR while the USD was down across the board.

Economic News

USD – US Economic Data Shines

A swoon of US economic data releases helped to improve market sentiment yesterday. Initially the market was boosted by the coordinated move by the world’s central banks. This was followed by strong private payrolls as the ADP report showed an increase of 206K jobs on consensus forecasts of 131K. Upward historical revisions contributed to the bullish tone of the report. Pending home sales were considerably higher, rising 10.4% on forecasts of only 1.4%, The Chicago PMI was stronger than expected at 62.6 on expectations of 58.5. This hints at continued momentum for Q4 growth. Today’s ISM manufacturing PMI is important as it is also expected to show an improvement in the manufacturing sector which should support the theory of a recovering US economy. And of course, tomorrow’s NFP jobs report will round out what has already been an exciting week.

Yesterday the USD was down initially from the Chinese decision to lower the reserve requirement banks must hold at the PBOC by 50 bp. The USD later sold off broadly following the announcement of the coordinated liquidity moves by the leading central banks while US equity markets rallied by more than 3.5%. All of this comes at the end of the month which may help to extend the 3-day risk on rally going into the year end.

EUR – Central Banks Buy the Euro Zone Some Time

In a surprise announcement today six central banks agreed to provide additional liquidity and lower the rate at which they charge for swaps arrangements. This sparked a bout of EUR short covering and the EUR/USD rallied as high as 1.3530.

Going forward the ECB will do all it can to support the euro zone economy which is already showing signs of a slowdown. In December the central bank will likely cut interest rates by at least 25 bp, fully unwinding the 50 bp of tightening that Trichet implemented in the first half of the year. Perhaps Mario Draghi will surprise markets with a bold move by cutting interest rates below 1.0% with a 50 bp reduction.

The world’s central bankers have helped to support markets but it will eventually come down to the Europeans to find a viable solution to the debt crisis. Yesterday’s move by the central banks will likely buy the euro zone some time but ultimately a political solution will need to be hashed out between Germany, France, and the rest of the euro zone members. Until then investors will find opportunities to sell into EUR rallies, similar to that of yesterday.

JPY – Chinese Reserve Requirement Cut Overshadowed by Central Bank Liquidity Move

The JPY resumed its appreciation versus the USD yesterday after 6 central banks agreed to new swap lines. With the pair largely at the whim of larger global forces yesterday the USD/JPY fell as low as 77.34 before pulling higher. Support is seen at the November 18th low of 76.60.

What has become lost in yesterday’s coordinated move was the 50 bp cut in the Chinese reserve requirement. This is the first step in the easing of Chinese monetary policy and a preparation by the Peoples Bank of China for an expected slowdown in both Chinese and global economic growth. The policy change is a 180 degree turn for China as less than 3-months ago the Chinese were concerned with ways to tackle rising inflation and a property market that is said to be a housing bubble on par with US housing market in 2007.

Gold – Spot Gold Up on USD Weakness

The move by the world’s leading central banks to provide increased liquidity helped to fuel gains in the price of spot gold. The new swap lines had investors selling USDs and buying the metal on expected USD weakness. Spot gold prices jumped to a high of $1,750 and are approaching some technical resistance. There is a downward sloping trend line off of the September and November highs which comes in at $1,763. A breach here would likely find resistance at the November high of $1,803. A failure at the trend line and the commodity could fall back to a rising support line from the September 28th low at $1,655.

Technical News


The EUR closed last week below the psychologically important 1.35 level and a close below it on the monthly chart will carry an even greater significance. Both monthly and weekly stochastics continue to fall and a break of 1.3210 will likely test the October low of 1.3145. Below here at 1.3040 there is the 61% Fibonacci retracement of the move from June 2010 to May2011 though this may only prove to be a mile marker in the new downtrend for the pair. Support is located at the January low of 1.2870. The November 18th high of 1.3610 stands out as resistance.


Falling monthly and weekly stochastics may have the GBP/USD testing the October low of 1.5270 as the pair is pulling within striking distance of its long term uptrend from the 2009 low which comes in at 1.5050. Any move higher will likely encounter heavy selling from the July pivot at 1.5780.


The downtrend for the USD/JPY remains firmly intact and only a break above 78.95 from the falling trend line from the 2007 high may reverse the pair’s bearish technical sentiment. A break above this line may have the pair testing the most recent post-intervention high of 79.50, a level that coincides with the pair’s 200-day moving average. To the downside the November 18th low of 76.55 is the initial support, followed by the all-time low of 75.56.


The USD/CHF is testing its October high at 0.9310 and a break here will likely open the door to the pair’s 20-month moving average at 0.9460 and the February high of 0.9775. Initial support is located at the November 18th low of 0.9080 with a deeper move perhaps taking the pair to the November low of 0.8760.

The Wild Card


Yesterday spot gold prices jumped to a high of $1,750 and are approaching some technical resistance. Forex traders may notice the downward sloping trend line off of the September and November highs which comes in at $1,763. A breach here would likely find resistance at the November high of $1,803. A failure at the trend line and the commodity could fall back to a rising support line from the September 28th low at $1,655.

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.

Schizophrenic Bond Vigilantes and Other Market Tales

By The Sizemore Letter

Not the Bond vigilante you had in mind?

Sometimes it is really hard to believe that Wall Street is run by serious, highly-educated professionals.  You wouldn’t hear a doctor use a ludicrous expression like “Santa Claus Rally.”  You wouldn’t take an accountant seriously if you heard them utter pithy nonsense like “Don’t frown, average down” or “Buy on the rumor, sell on the news.”  And you might assume your lawyer was a closet pervert if you heard him speak of “double bottoms,” “higher highs” or “violating the lows.”  Yet such is the vocabulary of the men and women of the investment profession.

And if the practitioners seem to make little sense, it is because the markets that they follow make little sense.  Stocks soared on Monday, breaking one of the worst seven-day stretches in recent memory.  The catalyst?  An unsubstantiated rumor that the IMF would be giving Italy an emergency loan.  (The IMF denied the rumor, by the way.)

Don’t waste your time trying to make sense of this or trying to establish cause and effect.  It will never make sense because traders don’t really react to information.  They react to each other.

The debt is just this big, yes?

The European crisis is a case in point.  Italy is sliding towards default because its demise has become a self-fulfilling prophecy.  Yes, Italy has shamefully high levels of debt due to years of irresponsible governance (thank you, Mr. Berlusconi).  But then, so does Japan.  Japan’s public debt is 220 percent of GDP compared to Italy’s 120 percent of GDP. Italy, unlike Japan, is also running a primary budget surplus.  Before interest costs, Italy’s books are in the black.  Japan certainly cannot boast this. Yet Japan remains a “safe haven” while Italy is on the verge of meltdown.

Why?  In the circular logic of markets, Japan is safe and can continue to service its gargantuan debts indefinitely because the interest rate it pays is low.  Rather than rates adjusting to the perception of risk, the perception of risk has adjusted to an environment of low rates.  Yet this circular reasoning flows the other way in Europe. Italian yields are not rising because Italy has suddenly become riskier.  Italy has become riskier because rising rates make it harder for the country to service its debts.

One might conclude that the so-called “bond vigilantes” suffer from severe schizophrenia.

As investors, we can learn a few important lessons from this.

  1. When you borrow money you subject yourself to the often cruel whims of the capital markets.  This is as true for countries as it is for companies and individuals.
  2. Risk has a price, and you should never pay too much for it.  Neither party is likely to come out well in the end.

If bond investors had demanded higher borrowing rates from Italy years ago, we wouldn’t be in this mess today.  Italy would have been forced to borrow less money and live within her means.  Likewise, when investors shower companies with capital and bid their stock prices to ridiculous levels, both the investors and the company suffers.  Management makes suboptimal decisions and the investors generally see poor returns going forward.

Government debt has, in the words of newsletter writer James Grant, moved from offering a “risk free return” to a “return free risk.” 

With all of this said, where should investors put their money?  Staying in cash is not a viable long-term option, and investors would be out of their mind to put money in most bonds at current prices.

Given that this article has focused on the irrationality of markets, my answer might surprise you.  I recommend that investors turn to equities.

This is not a call to simply buy an S&P 500 index fund and “buy, hold and pray.”  Instead, I recommend that investors specifically pick and choose low-debt companies that were able to raise their dividends in the crisis years of 2008 and 2009.

Any company able to raise its dividend during the worst financial crisis in 100 years is a company that can survive anything.  Even the destruction of the euro.  And given that many stocks trade near valuation lows last seen three decades ago, your chance of permanent or long-term loss would seem to be small.

Some candidates to consider: McDonalds (NYSE: $MCD), Wal-Mart (NYSE: $WMT), and Walgreen Co. (NYSE: $WAG).  All three have raised their dividends every year for the past decade, and all three currently yield more than the 10-year bonds of the United States, Germany, or Japan.

If you liked this article by Sizemore Insights, you’d probably enjoy The Sizemore Investment Letter, our premium members-only newsletter. Click here for more information.

Central Banks and US Data Boost Risk Appetite

Source: ForexYard


Today’s data releases from the UK and the US may help higher yielding assets receive a bid following yesterday’s coordinated central bank move and a reduced Chinese reserve requirement.

This morning we’ll get UK manufacturing PMI which is forecasted to fall to 47.1 from 47.4. Sterling has been bid the past 3-days versus the USD and the GBP/USD may find initial resistance at yesterday’s high of 1.5780, followed by the November 18th high of 1.5890. Support comes in at the November low of 1.5420.

Building on yesterday’s positive ADP jobs report and pending home sales the strong US economic data looks to continue into today and tomorrow. ISM manufacturing PMI will likely show the momentum from Q3 is carrying over in to Q4 which could translate into stronger GDP and finally put to bed the idea of a double dip US recession. Stronger data will likely keep the USD on its back foot and the USD/JPY could test yesterday’s low of 77.30 with scope for the November 18th low of 76.55.

Read more forex trading 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.

Brazil Central Bank Cuts Interest Rate 50bps to 11.00%

The Banco Central Do Brasil reduced the Selic interest rate by another 50 basis points to 11.00% from 11.50% previously.  In its statement, Brazil’s Central Bank Monetary Policy Committee (Copom) said [translated]: “Continuing the process of adjusting monetary conditions, the Committee decided unanimously to reduce the Selic rate to 11.00% pa, without bias. The Monetary Policy Committee believes that the timely mitigate the effects coming from a more restrictive global environment, a moderate adjustment in the level of the base rate is consistent with the scenario of convergence of inflation to the target in 2012.

Brazil’s central bank previously cut the rate by 50 basis points in October and September, after raising the Selic rate by 25 basis points to 12.50% at the June Copom meeting this year, which at the time amounted to total tightening for the year of 175 basis points (now net tightening of 25bps).  Brazil reported an annual inflation rate of 7.31% in September, compared to 7.23% in August, 6.87% in July, 6.71% in June, and 6.55% in May, and just outside the official inflation target of 4.50% +/-2% (2.5-6.5%).  

The Brazilian government is forecasting economic growth this year of 4.5-5%, compared to GDP growth of 7.5% during 2010.  The “BRIC” emerging market economy grew 0.8% q/q in the June quarter (1.3% in March), placing annual growth at 3.1% (4.2% in Q1).  The Brazilian Real (BRL) has weakened about 12% against the US dollar so far this year, while the USDBRL exchange rate last traded around 1.81

Global Central Banks Announce Further Coordinated Liquidity Measures

The European Central Bank (ECB) announced “coordinated central bank action to address pressures in global money markets”.  The move follows the announcement of joint USD liquidity operations announced by the bank in mid-September.  As part of the action, the central banks involved (Canada, UK, Japan, EU, US, Swiss) will lower the interest rate on US dollar liquidity provision arrangements by 50 basis points, with the new rate being the US dollar Overnight Index Swap (OIS) rate plus 50 basis points.  The banks also agreed to swap arrangements which would ensure liquidity through to the 1st of February 2013.  The moves are designed to counter the tightening up of credit markets and liquidity in the European banking system.

Following is the full text of the main part of the announcement:
“The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.
These central banks have agreed to lower the pricing on the existing temporary US dollar liquidity swap arrangements by 50 basis points so that the new rate will be the US dollar Overnight Index Swap (OIS) rate plus 50 basis points. This pricing will be applied to all operations conducted from 5 December 2011. The authorisation of these swap arrangements has been extended to 1 February 2013. In addition, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank will continue to offer three-month tenders until further notice.
As a contingency measure, these central banks have also agreed to establish temporary bilateral liquidity swap arrangements so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant. At present, there is no need to offer liquidity in non-domestic currencies other than the US dollar, but the central banks judge it prudent to make the necessary arrangements so that liquidity support operations could be put into place quickly should the need arise. These swap lines are authorised through 1 February 2013.”

AUD/NZD Dailyoutlook – 01 December

AUD/NZD Daily outlook – 01 December

 Wednesday saw an eventful European and US trading session with the pair completing a Hikkake pattern rejecting strong upper resistance sitting at the 1.3180-1.3200 area. Since mid September we’ve seen the bulls well in control of this market; however trading since late October has been flat with much sideways chop providing few price action trading opportunities.

The Hikkake pattern can clearly be seen in the chart below. The 3 bar pattern is comprised of 3 bearish pin bars suggesting the market is strongly resisting upper levels.



In the chart below we can see the strong area that the market has been finding resistance at. Early in the year the pair was supported by the 1.3175 area which later turned into resistance. We’re now again back up at this level and it is once again proving to be a relevant level in the market.

Article by


The resistance is further strengthened by a 61.8% Fibonacci retracement level. Taking the swing high and low from 2011 we can see the 61.8% Fib level sits just above our S/R level mentioned above. Wednesdays pin bar bounced almost perfectly off the Fib retracement. It’s also wise to take note of the most recent bounce and rejection of the 61.8 shown below.



With the strong resistance tied in with the 61.8% Fibonacci retracement level we would expect a pull back in the coming days. The 3 bar Hikkake that is comprised of bearish pin bars supports our short term bearish outlook for the pair. Initial targets will be at the 1.3 level. Should we see a break and close below this area we could expect to fall towards the 1.2880 area depending on momentum.