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Market Directions Sunday March 30, 2008


The Commodity Currencies




Two of the Asian Dollars, the Australian and the New Zealand and one of the North American, the Canadian, are the currencies of best know and largest of the world’s natural resource based economies. These currencies have tended to rise and fall with the commodity use cycles of global economic growth. In the past, as the industrial world economic growth waxed and waned these currencies would move higher and lower anticipating the state of world commodity usage six months to a year in the future. As the economic growth cycle reached it peak the currencies would decline with the pending drop in economic productivity, anticipating also the central bank rate cycle. In the past, growth cycles were relatively well coordinated across the western industrial world and Japan, with the United States acting as the engine for worldwide economic activity.

Into this simpler world of industrial consumers and resource producers, twinned in economic cycles, has entered the developing world, and the newly industrialized nations of Asia, foremost India and China.

These countries constitute a resource market independent of the older industrial countries. With very large populations and burgeoning consumer classes, they have continued their breakneck economic growth ignoring, so far, the slowdown in the United States. Their internal markets for consumer goods, many of them of their own production, have also grown apace. Their rapid ascent as large resource consumers has outstripped the development of new sources for commodity production. One result has been the commodity price boom, led by the most ubiquitous of all industrial commodities, oil. Resource extractions economies and their currencies have benefited with strong GDP growth and buoyant currencies.

But the situation is about to change. The American economy has stalled, it may have already entered recession, the length and depth of which is unknown. To date there have been few signs of a sympathetic slowdown in Europe, China or India. But some degree of spillover from the United States is still an assumption the currency markets cannot discount.

Will the commodity currencies, dependant as their economies are on resource exports, maintain their current high levels in the face of this potential economic slowdown? What other factors have contributed to the long sustained run in these currencies?

All three currencies have been at or near historic highs against the US Dollar in the past several months. The worldwide commodity boom and the weakness of the US currency have provided much support. But equally important for the two Asian Dollars have been the activist anti inflation policies of their central banks. The base rates in New Zealand and Australia, 8.25% and 7.25% respectively, are some of the highest in the world. But, as with global economic growth change is looming.

The Reserve Bank of New Zealand has not altered rates since last summer and recently moved to a neutral stance. The Australian Central Bank added 25 basis points in March and retains a tightening bias. But as the only major industrial bank still raising rates it is doubtful the policy will continue much longer. As with the ECB, the next move, at whatever timing, will likely be lower. The present rate hike cycle appears to be over. Canada with its much closer ties to the American economy has already begun its rate reductions. The support that had been provided to these currencies by the widening rate differentials will probably begin to reverse over the next months.

The last support factor for these currencies has been the extraordinary speculative run in the so called ‘carry trade'. But that too has been severely diminished in the past six months.

The New Zealand Dollar/Japanese Yen cross peaked at 97.75 last July. At its current level of 79.00 it is almost 20% below the top. Since the massive risk aversion drop in August of last year the currency pair has exhibited a steady if volatile downtrend. Much the same can be said of the Australian Dollar/Japanese Yen cross. It peaked in July at 107.50, fell precipitously at onset of the credit crisis in August, climbed again to 107.85 in late October on strength in the Australian Dollar and has since moved steadily if chaotically down to its current level of 91.00, 16% below the summit. Likewise the Canadian Dollar/Japanese Yen pair reached 125.50 early last November and is now languishing near 97.00, a 22% decline.

A good portion of the weakness in these crosses is attributable to the fall in the US dollar component of the crosses -- the dollar yen -- as the rate of the US dollar against the yen is called by traders. The cross rate for two of these pairs is obtained by multiplying the dollar yen rate by the rate for the Australian the New Zealand Dollar. But the driving force down has been the sustained aversion to speculative risk that has overtaken the currency markets since the beginning of the credit crisis last August.

The steady support these speculative crosses supplied to the non yen component, the Australian Canadian and New Zealand Dollar, as the crosses moved ever higher has been lost. And a return of the dollar yen component, that is a rise in the US Dollar against the yen will not bring these crosses back. Any gain to the cross will likely be balanced by losses in the opposite component; as the US Dollar moves higher the three other dollars will sink; the cross rate will not gain. In other words if the US dollar strengthens then the Australian New Zealand and Canadian Dollar will weaken and the carry trade crosses will continue to fall.

Of the three factors that have contributed to the long bull market in these commodity currencies only one, the demand and price for their resource exports is likely to remain at elevated levels. With the increasing worldwide demand commodity prices will not return to pre boom levels as would normally happen at the end of an expansionary economic cycle. Until high prices bring development of new sources for commodities or substitutes to market, commodity prices are likely to remain above historical norms.

The two remaining factors, the rate advantage over the US dollar and the structural support provided by the rising carry trade to the cross rate and its components have already moved to neutral, the rate advantage, or reversed, the carry trade. Neither will give the commodity currencies any further extraordinary support.

Prediction is risky, but it is likely that all three commodity currencies have peaked and will over the next year revert to more historical levels.

Joseph Trevisani
FX Solutions
Chief Market Analyst

Dollar Drops to Record Low Against Euro on Weak US Jobs Data, but Later Rebounds in Europe

Friday March 7, 12:29 pm ET

By Matt Moore, AP Business Writer


FRANKFURT, Germany (AP) -- The dollar briefly fell Friday to a record low against the euro after data showed U.S. job cuts hit the biggest monthly number in five years.
But the currency regained lost ground and was trading higher against the euro by late afternoon in Europe as traders digested the Federal Reserve's announcement that it would provide more cash to the banks that need it.

The U.S. Labor Department said American employers cut 63,000 jobs in February -- the starkest sign yet that the U.S. is heading toward a recession or in one already.

Those fears pushed the 15-nation euro as high as $1.5463, the latest in a string of all-time highs but the surge was cut short as the focus shifted to a Fed announcement that it would boost the size of auctions planned for March 10 and March 24 to $50 billion each. That is up from the $30 billion limits it had previously announced. The auctions serve as short-term loans to get banks the cash they need to keep lending to their customers.

That pushed the euro down to $1.5356 in late afternoon European trading -- below the $1.5370 it bought late Thursday in New York.

European businesses say they are starting to feel the pinch, notably from U.S.-based buyers who assert that the high euro makes European goods more expensive.

Also Friday, the British pound traded above the $2 mark for a second day, buying $2.0145 -- above the $2.0092 it bought late Thursday in New York. It had jumped Thursday after the Bank of England kept its key interest rate unchanged at 5.25 percent.

The dollar fell as low as 101.40 Japanese yen, near a three-year low, before it recovered to 102.83 yen in late European trading. It was still down from 103.09 yen late Thursday.

"The prolonged silence from the Japanese camp in the face of the yen's gains is not only historic but rather conducive to its ascent," said Ashraf Laidi, the chief foreign exchange analyst at CMC Markets in New York.

He said the Federal Reserve's priority of tackling the economic slowdown over inflation will "make the 100 yen figure an inevitability."

That could happen "as early as this month, especially if the Fed opts for a 75 basis point easing on March 18," he said.

Lower interest rates can jump-start a nation's economy, but can weigh on its currency as traders transfer funds to countries where they can earn higher returns.

Good advice, greed kills in this game. I too have had some great runs only to end up losing all to a few bad calls. Just learned candle stick charting and it is a big help. What works best for you?

Market Directions Sunday, November 11, 2007

The ECB, BOE and Fed - actions and words
Dollar crisis, what is a crisis?
The European inflation ‘hill’

After two successive rate cuts the markets will only anticipate more of the same from the Federal Reserve. Mr. Bernanke and the Fed Govenors can imply a neutral or tightening bias all they want. They can cite inflation and the potential for future inflation, they can quote the equal balancing of risk between inflation and growth; but in the end, traders will not now price anything but further rate cuts. Currency futures on Friday were, once again, almost unanimous in predicting a 25 basis point reduction in the Fed Funds rate at the December 11th FOMC meeting.

The European Central Bank rate policy is described equally well by their actions, not by their rhetoric. Jean Claude Trichet can recount the inflationary potential of rising oil prices and rehearse the paramount central bank task of ensuring price stability, but in the end the market will not price anything but an extended stay at 4.00%. No matter what the provocation from inflation, it is very difficult to see the ECB governing board raising rates in the near future. Gathering information is as good a public rationale as any.

Both Mervyn King, the head of the Bank of England (BOE), and Jean Claude Trichet, head of the European Central Bank (ECB) do not seem to believe that the economic storms brewing in the new world will reach the old. Or barring that, they have yet more time to contemplate the economic signs before acting. If the United States sinks to recession it is hard to think how the European Monetary Union (EMU) would be unaffected; that has been past history. Perhaps Mr. Trichet and Mr. King are implying their confidence in the US economy and its ability to avoid recession when they stand pat on rates.

Actual economic conditions are the Fed’s stated determinant for policy decisions. But the markets cannot see into the current economic picture anything but problems. Even if all the America news is not bad, and there are some positive influences. Jobs for one remain relatively plentiful and consumer spending has not fallen appreciably. The markets will not change their overall view of the Dollar without real positive developments. Without an end to the dismal news from housing, a stabilization in the equities and a completion of the asset-backed write-downs in the financial sector, the fear of recession will not abate nor will the Dollar recover. Sooner or later, the logic goes, foreclosures, the general drop in housing wealth, and now the dramatic retreat in the equities will force consumers to cut back on spending and then the down cycle leading to recession begins. So far, it should be remembered, this has not happened.

Markets may have short attention spans, but they also have exaggerated focus. Right now the focus is on the negative aspects of the US economy and the Dollar. The continual drumbeat reminds the markets only of the US economic woes and Dollar risk, adding market expectation for more Fed rate reductions to the actual pressure of economic events

The ECB is caught in a defile between inflation risks and sliding economic growth. Record oil prices exacerbate concerns on the inflation side which were already elevated due to the latest 2.6% HICP (Harmonized Index of Consumer Prices) figure. On the economic side the preliminary performance figures from the EMU itself and the now widely expected US economic slowdown and its contagion effects, offer abundant cause for worry. When combined with the as yet unresolved financial sector and credit market problems, the potential for economic damage approaches certainty

The policy predicament is essentially the same for the US Federal Reserve, the European EC and the British Bank of England, though the economic curve is more advanced in the US. The Fed sees more economic risk, or is more willing to do something abut the growth risk, which amount to the same thing, and the ECB sees more inflation risk, and is more willing to do something about that-refuse to cut rates, that is. The BOE is somewhere in the middle Mr. Bernanke’s “delicate balance” of growth and inflation is an apt descriptive for the uncomfortable position of all three central bank policies.

Oil prices, bank and mortgage industry asset write downs and the once and future housing crisis make a positive world economic view hazardous. But perhaps it is the prospect of a genuine Dollar crisis, where the world’s investors abandon the US currency and the tremendous strains that would impose on the world’s financial system that is the real fear lurking in the minds of traders as they contemplate their currency graphs and the slope of the Dollar’s decline. A genuine Dollar crisis would cause severe financial and economic dislocation, perhaps even more than could be handled by the world’s central bankers. Will such visions stop traders from selling the dollar? No. On the contrary such visions could provide great additional leverage, psychological leverage, against the dollar. A dollar contrarian is an extremely endangered species.

Central Banks
The Reserve Bank of Australia hikes the cash rate 0.25% to 6.75% as expected, citing consumer demand, high capacity utilization and inflation challenges. The central bank view is that “the tightening in global credit conditions .has been less pronounced [in Australia] than elsewhere”.

The European Central Bank holds it main rate at 4.00%; the Bank of England does the same at 5.75%. Both decisions were expected.

The Week in Review November 5 - November 9
United States
Quarter two GDP was 3.8%; quarter three was 3.9% with a potential bump to 4.9% or higher when the preliminary (2nd issue) numbers are out November 29th. Even if, as Mr. Bernanke said in his testimony before Congress on Thursday, the economy slows ‘noticeably’ in the fourth quarter, what would that decline entail, growth at 2.5%, or 2.0%? Such quarter to quarter shifts are not uncommon. The last was on either side of the first quarter this year. If fourth quarter GDP is 2.0%, less than half the likely rate of the third quarter, the US economy would still have grown 2.6% for the year. A similar scenario in the EMU would leave GDP at 2.36%.

The ISM non manufacturing numbers do not point to a slowdown in the services sector at the beginning of the fourth quarter. The long term average of this series is 57.7 and the 55.8 reading in October, up from 54.8 a month earlier, remains moderately expansive. And, perhaps surprisingly, the services sector seems largely free of contagion from the housing collapse and the financial market credit crunch. “When you take away a few industries, most notably financial services and real estate, business is pretty good out there”, said Anthony Nieves, head of the Institute for Supply Management (ISM) non-manufacturing survey committee. Wholesale inventories could add a much as 1.0% to third quarter GDP, which would boost the preliminary number issued on November 29th (2nd release) to 4.9% from 3.9%, the strongest quarter since the beginning of 2006 recorded 4.8%. The estimates for additions to inventories in August and September which were included in the advanced GDP number issued on October 31st were much lower than the actual +0.7% and +0.8%. In addition, the increase in US exports represented by the much lower than forecast International Trade Balance, -$56.5 billion, will boost the ‘preliminary’ GDP statistic as well. Estimates currently range as high as 5.2% for the quarter.

Consumer sentiment collected by the University of Michigan plunged in November to 75.0 from 80.9 in October, five points below market estimates. It was the lowest level for this gauge since 1993 excepting the post Hurricane Katrina reading in fall of 2005. This level of sentiment is just above what is usually associated with a recession. But recessionary sentiment numbers are normally seconded by rising jobless claims which is not true currently.

Eurozone
“A hump” is how Jean Claude Trichet, head of the ECB, described near term EMU inflation prospects. He did not discuss the dimensions of the hill but all 'hills' have two sides and the far side is a down slope.

The Services Purchasing Managers Index (PMI) at 55.8 gave ECB officials some hope that the united economy may move fast enough to keep them from having to cut rates in the face of looming inflation. The services sector is not as dominate in Europe as it is in the States but the PMI was cited as a positive result by EU government representatives. However, September’s Industrial PPI, higher than predicted in both the monthly and yearly reading, and Retail Trade, less than half the expected increase, added to the string of economic figures pointing precisely at the ECB’s chief worries, inflation and slipping economic growth.

Economic Releases November 5 - November 9
United States
Monday: the Institute for Supply Management (ISM) non manufacturing Index was 55.8 in October higher than the median forecast of 54.0 and also better than September's 54.8 result. New orders was healthy as 55.7 over September's 53.4; employment dropped slightly to 51.8 from 52.7. According to Anthony Nieves, the head of the ISM non manufacturing survey, the service sector is not overly affected by the problems in the housing and credit areas. Firms in the mortgage banking and real estate sectors are recording difficulties but aside from that, “companies are doing good business at this time”, he said in an interview with Market News International. Export orders were a particular strong point rising to 56 in October from 50 in the prior month.

Wednesday: Wholesale inventories rose 0.8% in September; Augusts’ numbers was revised to +0.7 from +0.1, implying much more production than anticipated in the last two months of the third quarter.

Non farm productivity improved at a 4.9% annual rate in the third quarter far superior to the 3.2% expected and more than double the 2.2% rate in the second quarter. It was the strongest addition to productivity since the third quarter of 2003 when it was +10.4%. Output growth rose to 4.3% but hours worked fell 0.5%, hence the rise in productivity as labor costs are the largest component in most production. Unit labor costs (ULC) in the third quarter fell 0.2%, well off the anticipated 1.0% increase. In the second quarter ULC had gained 2.2%; productivity is now 4.3% higher than it was a year ago. There is little or no wage inflation in these numbers.

Friday: International Trade Balance for September came in at $56.5 billion $2 billion less than the general forecast. The August deficit was adjusted lower to $56.8 billion from $57.6 billion. The timing of oil prices, since September they have moved steadily higher, will add about $10 billion to the deficit over the next three months. Exports without oil rose 1.1% in the month led by food exports and are 13.6% higher on the year. Exports will supply further strength to the GDP revision now expected to be at 4.9% or higher in the third quarter.

The University of Michigan Consumer Sentiment Index fell to 75.0 in November, 80.0 was the median prediction. The October result was 80.9.

Eurozone
Tuesday: the October Purchasing Managers Index (PMI) services moved up 0.2 to 55.8 in the final report. It represented a weak recovery over September’s 54.2.

Retails Trade (sale) for September was a major disappointment coming in at +0.3% monthly and +1.6% year to year; +0.7% and +2.2% had been predicted. August had been lackluster as well at +0.1% and +1.0% respectively.

The industrial producer price index (PPI) for September gained 0.4% on a month or 2.7% over a year earlier. Vaulting energy prices were blamed for the increase; +0.3% and +2.6% had been predicted. Though not one of the headline ECB inflation statistics, the upward pressure energy products place on CPI is one of the reasons behind the ECB’s hesitation on rates.

Germany
Tuesday: October services PMI registered 55.1; September was 53.1.

Wednesday: Industrial output rose more than expected 0.3% in September, a 6.0% annual rate; -0.5% monthly and +5.2% annually had been predicted. The August figure was moved up to +1.9% from +1.7%.

United Kingdom
Monday: Monthly manufacturing output receded 0.6 in September, far below the predicted 0.1% growth. It was the largest manufacturing decline in seven months and along with the 0.4% fall in industrial production, these drops in economic activity could reduce third quarter GDP activity to +0.7% from +0.8% in the second quarter. Industrial production had been expected to expand 0.2% in September.

The CIPS services index registered 53.1 in October, the lowest since May 2003, and much less than September’s 56.7.

Wednesday: Nationwide consumer confidence fell to 98 in October; 97 had been expected, the September reading was 99.

Japan
Tuesday: the Preliminary leading index dropped to 0 in September from 27.3 in August; but the coincident index at 66.7 remained indicative of moderate expansion, though down from 83.5 in August. These indices predict a slowing economy three to six months in the future when the result is below 50 and improving economic conditions when above 50. Opinion is divided whether the divergence of these two indicators presages recession in the second or third quarter of 2007. The last time the leading index was at zero in 1997 a recession did follow but at that time, tellingly, the coincident index was at zero as well.

Friday: September industrial production came in at -1.4%, after production had bounced +3.5% in August

Fed Chairman Says Economy Likely to Slow

By EDMUND L. ANDREWS

WASHINGTON, Nov. 8 — Ben S. Bernanke, chairman of the Federal Reserve, told Congress today that the economy is going to get worse before it gets better, a message that got a chilly reception from both Wall Street and politicians.

On a day when stock prices swung wildly, the dollar hit another new low against the euro and further signs emerged that consumers are growing more cautious about spending, Mr. Bernanke warned that the economy is about to “slow noticeably” as the housing market continues to spiral downward and financial institutions tighten up on lending.

But in a disappointment to investors, Mr. Bernanke offered no signal that the central bank might soften the blow by lowering interest rates for a third time this year at its next policy meeting on Dec. 11.

Stock prices, which had plunged Wednesday, went on a roller-coaster ride after Mr. Bernanke testified. The Dow Jones industrial average first fell 205 points by mid-afternoon, but then clawed back most of the way and ended the day at 13,266.29, down just 33 points.

Testifying before the Joint Economic Committee, the Fed chairman said that the two rate cuts in September and October “should” be enough to keep the economy from slipping into a recession. Without being specific, he reinforced statements by other Fed policymakers that the economy would have to show signs of stalling out entirely before they would reduce rates again.

Asked if he saw any risks of a recession, Mr. Bernanke demurred. “We have not calculated the probability of a recession,” he responded. “Our assessment is for slower growth, but positive.”

The Fed chairman’s stance was similar to that of Treasury Secretary Henry M. Paulson Jr. At a meeting today with editors and reporters of The New York Times, Mr. Paulson predicted that the crisis in the mortgage and credit markets would hurt growth but not lead to a recession.

"I believe we will continue to grow,” Mr. Paulson said. "We have a diversified economy."

Mr. Bernanke’s message did not sit well. Wall Street analysts quickly criticized him for ignoring the real risk of a serious downturn. And at least one Republican, Senator Sam Brownback of Kansas, begged him at length to cut interest rates as soon as possible.

But Fed officials are far from persuaded of the need for another rate cut, even though some now expect economic growth to slow to an annual pace of 1.5 percent or less in the final months of this year — a dramatic downshift from the rapid pace of almost 4 percent this summer.

Mr. Bernanke offered a rocky outlook for the months ahead. He said that the battered housing market had yet to hit bottom, that delinquencies and foreclosures were likely to rise and that the downturn in home building was “likely to intensify.” He predicted that personal spending would advance more slowly, because consumers are less confident and because of tighter credit conditions.

On top of all that, he said, “further sharp increases in crude oil prices have put renewed upward pressure on inflation and may impose further restraint on economic activity.” Oil traded above $95 a barrel today, but the price was down slightly from the day before but still near its recent record highs.

Despite all these worrying signs, Mr. Bernanke noted that the economic data since the Fed reduced short-term interest rates last week “continued to suggest that the overall economy remained resilient in recent months.”

“The cumulative easing of policy over the past two months should help forestall some of the adverse effects on the broader economy,” he said.

Wall Street analysts and anxious investors took little comfort in the chairman’s remarks.

“Mr. Bernanke gave no ground to the market’s desire for further easing,” wrote Ian Shepherdson, chief United States economist at High Frequency Economics in Valhalla, N.Y.

But Mr. Shepherdson and a number of other analysts predicted that the economy would slow much more than Mr. Bernanke expects and force the Fed’s hand.

Paul Ashworth, an economist at Capital Economics in London, predicted that the economy will be “stagnant at best” in the final quarter of this year.

“The only question is whether there is enough evidence of this slowdown available by mid-December — or whether we will have to wait until January for the next cut,” Mr. Ashworth wrote in a research note.

David Rosenberg, chief United States economist at Merrill Lynch, predicted that the housing market would not hit bottom by the end of next year. Noting that the Fed chairman said he would “act as needed,” Mr. Rosenberg said Mr. Bernanke had left the door open to more rate cuts.

At the hearing, Senator Charles E. Schumer of New York, chairman of the Joint Economic Committee, urged Mr. Bernanke to act more aggressively to stimulate the economy. “I’m very concerned that there may be a bigger storm on the horizon,” he said.

But Mr. Bernanke refused to budge. Indeed, he referred first to the Fed’s attention to “price stability” and second to its interest in “sustainable growth.”

That did little to cheer lawmakers. In an early sign of the political pressure that the Fed is likely to face if the economy falters next year, Senator Brownback, who recently abandoned his Republican campaign for president, pleaded with Mr. Bernanke to cut interest rates in time for the Christmas shopping season.

“It seems to me that now is the time,” Mr. Brownback said. “When those gas prices get up to $3 a gallon, it seems to hit some sort of psychological point in consumer’s mind that ‘I have less to spend,’ and that’s a reality for them.”

Supermodel Bundchen Joins Hedge Funds Dumping Dollars

By Bo Nielsen and Adriana Brasileiro


Nov. 5 (Bloomberg) -- Gisele Bundchen wants to remain the world's richest model and is insisting that she be paid in almost any currency but the U.S. dollar.

Like billionaire investors Warren Buffett and Bill Gross, the Brazilian supermodel, who Forbes magazine says earns more than anyone in her industry, is at the top of a growing list of rich people who have concluded that the currency can only depreciate because Americans led by President George W. Bush are living beyond their means.

Even after the dollar lost 34 percent since 2001, the biggest investors and most accurate forecasters say it will weaken further as home sales fall and the Federal Reserve cuts interest rates. The dollar plummeted to its lowest ever last week against the euro, Canadian dollar, Chinese yuan and the cheapest in 26 years against the British pound.

``We've told all of our clients that if you only had one idea, one investment, it would be to buy an investment in a non- dollar currency,'' said Gross, the chief investment officer of Pacific Investment Management Co. in Newport Beach, California, and manager of the world's biggest bond fund. ``That should be on top of the list,'' said Gross, whose firm is a unit of Munich- based insurer Allianz SE.

Bundchen's Demands

The dollar fell 0.8 percent last week and touched $1.4528 per euro, the weakest since the euro's debut in 1999. It traded at $1.4484 at 9:37 a.m. in New York. The dollar lost 2.8 percent last week to 93.47 Canadian cents and 1.8 percent to $2.09 per British pound. The Fed's U.S. Trade Weighted Major Currency Index measuring the dollar's performance versus seven currencies, such as Japan's, slid to a record low of 72.22.

BNP Paribas chief currency strategist Hans-Guenter Redeker, the most accurate foreign-exchange forecaster last quarter in a Bloomberg survey, said the dollar may drop to $1.50 per euro by year-end. The median estimate of 42 strategists surveyed by Bloomberg is for the currency to end the year at $1.43. Among those surveyed last week, the forecast ranges from $1.42 to $1.50.

When Bundchen, 27, signed a contract in August to represent Pantene hair products for Cincinnati-based Procter & Gamble Co., she demanded payment in euros, according to Veja, Brazil's biggest weekly magazine. She'll also get euros for the deal she reached last October with Dolce & Gabbana SpA in Milan to promote the Italian designer's new fragrance, The One, Veja reported. Bundchen earned $33 million in the year through June, Forbes reported in July.

`More Attractive'

``Contracts starting now are more attractive in euros because we don't know what will happen to the dollar,'' Patricia Bundchen, the model's twin sister and manager in Brazil, said in a telephone interview in September from Sao Paulo. She declined to discuss details of the arrangements last week, as did Anne Nelson, Bundchen's agent in New York at IMG Models.

Procter & Gamble's Sao Paulo-based external relations director for Brazil, Andre Quadra, said he couldn't give details of the Pantene contract because of a confidentiality agreement.

Analysts in a Bloomberg survey expect the dollar to strengthen in coming months as stronger-than-forecast reports suggest U.S. consumers will keep the economy out of recession. Payrolls grew by 166,000 in October, double the median forecast of economists in a Bloomberg survey.

The dollar will rise to $1.43 per euro this year and $1.35 by the end of 2008, according to the median estimate in the survey.

`Moving to Asia'

``So far the data has shown the U.S. economy may not be slowing to the extent the majority of the market had expected,'' said Omer Esiner, an analyst at currency-trading company Ruesch International Inc. in Washington who expects the U.S. currency to strengthen to as much as $1.38 per euro. ``That could temper policy easing down the road and lend support for the dollar.''

Buffett, whom Forbes in April ranked as the world's third- richest person behind Bill Gates and Carlos Slim, told reporters in South Korea last month that he is bearish on the U.S. currency.

``We still are negative on the dollar relative to most major currencies, so we bought stocks in companies that earn their money in other currencies,'' Buffett said Oct. 25. Buffett, 77, is chairman of Omaha, Nebraska-based Berkshire Hathaway Inc.

Jim Rogers, a former partner of investor George Soros, said last month he's selling his house and all his possessions in the U.S. currency to buy China's yuan.

``The dollar is collapsing,'' Rogers said last week in an interview. ``I'm moving to Asia because moving to Asia now is like moving to New York in 1907 or London in 1807. It's the wave of the future.''

Better Returns

The dollar is falling as investors seek better returns outside the U.S. Developing Asian nations including China and India will grow 9.8 percent this year, compared with 1.9 percent for the U.S., the International Monetary Fund said last month.

China, India and Russia accounted for half the global expansion over the past year, and the euro region will expand 2.5 percent in 2007, outpacing the U.S. for the first time since 2001, the Washington-based IMF estimates.

``The world has learned to live with a weak dollar,'' said Jay Bryson, a former Fed analyst who is now a global economist in Charlotte, North Carolina, at Wachovia Corp., the fourth-largest U.S. bank. ``It's not worried. It doesn't rely on the U.S. as much as it once did.''

Bryson forecasts the dollar will weaken to $1.50 per euro by the end of June.

Housing Recession

The U.S. currency dropped in the past two months as the Fed cut its target rate for overnight loans between banks twice to keep a decline in home sales from starting a recession. The central bank reduced the rate by three-quarters of a percentage point to 4.5 percent, including a quarter-point last week. The National Association of Realtors trade group in Washington said on Oct. 10 existing home sales may fall 11 percent this year.

Lower rates have made yields on U.S. debt less attractive. U.S. two-year Treasuries yield 0.30 percentage point less than German government bonds of similar maturity. The last time Treasuries yielded less than bunds was 2004.

The weaker currency has cushioned the U.S. economy during the worst housing recession in 16 years. Gross domestic product grew at an annual rate of 3.9 percent in the third quarter, the most in more than a year, the Commerce Department said Oct. 31 in Washington.

The five-year, 67 percent drop against the Canadian dollar has made it cheaper for fans from Toronto to drive the 110 miles (177 kilometers) to Orchard Park, New York, to watch the Buffalo Bills play football.

Canada Day

Canadians account for 11 percent of the team's season tickets this year, up from 6.5 percent in 2005, according to Scott Berchtold, the Bills' vice president of communications. At yesterday's annual Canada Day game, where the Bills beat the Cincinnati Bengals, a record 23 percent of the 70,745 fans were from Canada, he estimated.

``When the Canadian dollar was down around 65 cents, we didn't get anybody,'' Ralph Wilson Jr., the team's owner, said in an interview. ``When the dollar fell, we starting getting some people.'' The Canadian dollar bought 61.76 U.S. cents in 2002.

The dollar's drop also makes American goods cheaper abroad. U.S. exports were a record $138.2 billion in August, government data show. Net exports added 0.93 percentage point to U.S. gross domestic product last quarter, offsetting a 1.05 percentage point drag from housing, government data show.

``As long as the dollar's decline doesn't trigger inflation, it's a good thing, helping the U.S. economy to stay out of recession,'' said Robert Mundell, a professor at Columbia University in New York who won the Nobel Prize for economics in 1999.

Wealthy Clients

The Commerce Department's price index for personal consumption expenditures excluding food and energy rose 1.8 percent in September from a year earlier, the same as in August. The Fed forecasts the index will increase 1.75 percent to 2 percent next year.

Wealthy clients at San Francisco-based Union Bank of California have doubled their deposits in foreign currencies to $60 million the past two months as a hedge against a decline, said Bradley Shairson, head of currency and derivatives at the bank.

U.S. investors bought $198 billion in foreign securities this year through August, 72 percent more than in the same period last year, Treasury Department data show.

That's the same strategy as sovereign wealth funds run by the largest exporters and oil producers, including China, Singapore and Qatar, said Stephen Jen, head of currency research at New York-based Morgan Stanley.

The funds may grow to $17.5 trillion by 2017 from $2.5 trillion now and shift more than $500 billion out of the dollar in the next three years in search of better returns, he said.

``We're all thinking about diversifying out of the dollar,'' said Jen, who is based in London. ``It's a very logical thing.''

Market Directions Sunday, November 4, 2007

On the strength of an idea, the Euro marches on
The Mid Atlantic rift in GDP
ECB and BOE ponder their rate future

Dollar worriers abound on both sides of the Atlantic. In the US they fret that the housing collapse and the credit market crisis will terrify consumers. Scared consumers stop spending; GDP growth and job creation falter, consumers have less money to spend and the end result is a US slowdown or even recession. Advantage to the Euro. In Europe they fear that the return of inflation, said to have been imminent for the past year, will so paralyze the ECB that it will not lower rates for growth. Again, advantage to the Euro.

The currency markets have interpreted both the economic and rates side of the Euro US Dollar equation to the detriment of the Dollar for more than a year. If the EMU is growing faster, that is good for the Euro. If inflation is rising on the continent, keeping ECB rates high, that is also good for the Euro. If the Fed reduces rates to protect the American economy that is bad for the Dollar; it means that the US economy is in even more trouble than publicly acknowledged, which is worse for the Dollar. Both interpretations cannot be true for ever. Lower interest rates normally spur economic activity; higher rates eventually suppress it. If the US economic and rate curve is, as it appears to be, six months to a year ahead of the European, then the US will return to higher growth first; central bank rate policy will follow in due course.

Let us look at the economic side first. In the four quarters from April 2006 until the end of March 2007, that is quarters two, three and four in 2006 and quarter one in 2007, the European Monetary Union (EMU) area averaged 3.05% GDP growth. During the same period the US averaged 1.41%. The Euro began rising against the Dollar in the first quarter of 2006 and has continued, accelerating after the September 18th Fed 50 basis point rate cut.

Since the end of the first quarter 2007 the picture has changed considerably. In the second and third quarters the US economy has averaged 3.85% GDP growth. The EMU area registered 2.5% in the second quarter and will not deliver third quarter data until November 14th, but 2.5% or less is expected. The potential gap favors the US by a minimum of 1.3%.

The Fed ceased raising rates in mid 2006, the ECB in mid 2007. The Fed response to the financial market crisis in August has been to cut rates 0.75%. The ECB has, so far, done nothing and is not expected to cut this coming Thursday. Central bank rate policy has a six to twelve month lead time to economic effect. The response in US GDP growth in 2007 to the Fed change in policy in 2006 fits the rate time lag. There is no reason to assume the European economic growth will not obey the same rules. Those rules suggest that even if the ECB is finished raising rates the slowdown in EMU growth from the increases of the past two years is still to come. The Eurozone is still on the top of the economic slope looking down into a valley that the US has already crossed.

Oil prices remain near record levels, even when adjusted for inflation. Oil is the world’s most basic commodity. Record crude oil prices must exert inflationary pressures on the world’s economies. These pressures are the same on both sides of the Atlantic. However, the reaction of each economic area, the US and the EMU, to higher oil prices might not be at all the same.

If record gasoline prices are beginning to affect demand in the developed world, automobile ownership and use is roaring ahead in India, China and the Middle East. The rise in oil prices has been largely demand driven. If amity and coexistence suddenly broke out in the Middle East oil prices would fall $20 or even $30 dollars a barrel. They would not return to where they were ten years ago. The economic fact of rising commodity prices is the same everywhere in the world. But how individual economies cope with these prices changes is not uniform. Economic flexibility, technological innovation, labor mobility, lower taxes and a certain willingness to endure social dislocation are rewarded, the opposites punished. The US has a greater share of all these qualities than its continental competitors.

Economic logic does not prescribe trading decisions and changes in economic logic can take a long time to make their way into the currency markets. One of the truest market clichés is “The market can remain irrational far longer than you can remain liquid”. That caveat applies to the market’s ruling economic assumptions as well at to an individual trader’s equity account. Because economic logic dictates that a currency should move in one direction does not mean it will do so at any given time. For any one economic argument there is always an opposite. For any argument that says the Dollar must necessarily strengthen there is another, often equally well argued if not currently as true, that the Dollar must remain weak. Markets are psychological creatures. Like an individual they tend to stick to the current story until forced to change, especially if that story has been very profitable. But stories age and go out of style and the facts that once supported them may not do so any longer. The signs are gathering that the Dollar story is due for a change.

The ECB and Bank of England (BOE) meet on Thursday for policy decisions. Neither central bank is expected to alter rates from their current 4.00% and 5.75%. Officials from both banks have emphasized the threats from inflation in recent statements and downplayed economic dislocation.

Central Bank Rate Actions
The United States Federal Reserve Bank cut the federal funds target rate 0.25% to 4.5% and the discount rate 0.25% to 5.0%; the vote was 9-1 in favor. The FOMC adopted either a neutral or hawkish ‘bias’ depending on one’s interpretation of the accompanying statement.

BOJ kept rates at 0.5%; the vote was 8-1 in favor.

The Week in Review October 29 – November 2
United States
The Federal Reserve 0.25% rate cut on Wednesday was universally expected and brought little new volatility to the currency markets. If the Fed’s equal balancing of risk between growth and inflation may have signaled a bottom in US rates, you would not know it from the market reaction which set several new lows for the US currency subsequent to the announcement. The crucial phrase in the revamped statement was, “The Committee judges that, after this action the upside risks to inflation roughly balance the downside risks to growth”. In the current economic situation both sides of the growth and inflation policy equation are heavy with risk. The 75 basis points in cuts seems to be as far as the Fed is willing to go without further debilitory evidence from the economy. Certainly 3.9% GDP growth in the third quarter, two months of which took place after the credit market debacle began in early August, and 166,000 jobs on the October payroll, all of which were created after, will not advise Mr. Bernanke that more rate stimulation is required. The housing market has been falling for 18 months if not more, that is not a new economic fact. It is also not a prescription for further rate cuts this year.

Eurozone
The ECB rate decision is on Thursday, no change in policy expected despite pronounced EMU and German weakness in Manufacturing PMI. The EMU October reading was the weakest in more than a year and the German the lowest in over two. The German PMI was the steepest one month decline in the history of the series. HICP inflation at 2.6% in the latest month will keep the ECB fixated on its inflation guardian role.

United Kingdom
BOE rate decision is on Thursday. Like its counterpart across the channel the central bank is expected to keep rates on hold. Recent inflation numbers and good retail sales are likely to weigh more heavily with the Monetary Policy Committee than economic spillover from housing and the credit market scare.

Economic Releases October 29 – November 2
United States
Tuesday: Case Shiller Home Price Index fell 8.7% in August to 197.16; it was the sharpest plunge since June 1991. This index of year over year price changes had fallen on average less than 1.0% per month since March.

The Conference Board Consumer Confidence slid to 95.6 in October from 99.8 in September. It was the weakest reading in more than a year.

Wednesday: the ‘advanced’ (first issue) for third quarter GDP at 3.9% was much stronger than the 3.0% forecast and on par with the second quarter result of 3.8%.

Wednesday: the Chicago Purchasing Manager Index (PMI), the regional version of the Institute for Supply Management (ISM) report came in at 49.7, the first reading below 50 since February. September had been 54.2. Weakness in auto manufacturing weighs more heavily Chicago than nationwide.

Thursday: Personal Income rose 0.4% in September a marginal improvement over the +0.3% reading in August. But personal spending was only 0.3% higher, half the 0.6% gain in August. The Core PCE price Index added 0.2% in September twice the hike in August; the yearly rate was unchanged at 1.8%.

The ISM Index for October registered 50.9, considerably less than the 52.5 predicted and lower than the September result of 52.0. New orders’ declined to 52.5 from 53.4; employment rose to 52.0 from 51.7; prices paid scored 63.0, September had been 59.0

Friday: Non Farm Payrolls more than doubled the median estimate for October at 166,000, economists had been expecting 80,000; September and August were revised for a combined loss of 10,000. The US unemployment rate was unchanged at 4.7%

Eurozone
Wednesday: Flash (1st release) for the October Harmonized Index of Consumer Prices (HICP) at 2.6% was much higher than the 2.3% increase expected and the highest since September 2005. The September reading was left unrevised at 2.1%. The unemployment rate for the EMU area dropped 0.1% to 7.3% in October.

Germany
Friday: Manufacturing PMI for October was very weak falling to 51.7, more than four points below the September result of 54.9, the lowest reading since September 2005 and the sharpest fall in the life of the series, (since 1997).

United Kingdom
Thursday: manufacturing PMI in October came in at 52.9, much lower than the expected 54.2 and a substantial drop from the September reading of 54.7. New orders fell to 53.6 from 55.2 in September the lowest since August of last year. Export orders dropped to 50.9 from 52.6, their lowest in more than a year, both statistics reflected the ascendancy of the Sterling.

Western banks suffer big losses
By Gillian Tett and Paul J Davies in London and Stacy-Marie Ishmael in New York

Published: November 1 2007 19:55 | Last updated: November 1 2007 23:42

Global investors succumbed to a new bout of jitters on Thursday amid concerns that a host of important financial institutions are nursing additional problems related to the troubled US mortgage market.


Equity markets tumbled and bond prices rose in the US and Europe. US financial stocks endured their worst day in five years, with some of the worst falls suffered by large banks and smaller specialist credit insurers.

The S&P 500 index fell 2.6 per cent to 1,508.44, its worst day since August 9, dragged down by the 4.6 per cent drop in financial stocks. The London FTSE 100 index fell 135.5 points – 2 per cent – to 6,586.1, with similar falls in the German and French indices.

The signs of rising tension came as the Federal Reserve redoubled its efforts to keep the money markets functioning smoothly.

In its regular operations, the Fed added $41bn in temporary reserves to the banking system, the biggest one-day infusion since September 2001.

But the cost of interbank funds on Thursday remained above the Fed target. Analysts said the decision to cut interest rates to 4.5 per cent on Wednesday had offered little lasting comfort to investors.


Bond traders, however, priced in a greater chance of further rate cuts. The yield on the policy-sensitive two-year Treasury note fell 16 basis points to 3.77 per cent after having risen nearly as much in the immediate aftermath of the Fed’s rate cut.

“We have gone from a Fed saying they are neutral to figuring out what further losses the financials face and wondering whether that will force the Fed’s hand,” said Rick Klingman, interest rate trader at BNP Paribas.

The biggest single reason for the decline in equities was the revival of worries that big banks in the US and Europe would unveil further credit write-offs. Another focus of concern involved a less well-known pillar of the global financial system – smaller specialist insurers that provide credit guarantees to lenders and investors.


Shares in Radian, a private mortgage insurer, fell 19 per cent, after its first quarterly loss, due to mortgage-related problems. MBIA and Ambac, the two biggest bond insurers in the US, have also experienced dramatic declines, amid fears they, too, could be nursing unseen subprime-linked problems.

MBIA and Ambac – often called “monoline” insurers – say that they are well positioned and that their exposure to subprime assets is very small. But analysts fear that a worsening of the crisis could result in their losing their top-notch credit rating.

That, in turn, could trigger a “domino effect” that would cut the value of the bonds they have insured. The companies insure both complex securities backed by mortgages and less risky municipal bonds.

These concerns triggered a sharp rise in the cost of insuring monoline debt against default. The broader cost of buying protection against default of a basket of European and US bonds also reached the highest level in several weeks.

The rate of delinquencies among US mortgage borrowers, meanwhile, has doubled from the same period of last year, according to data from RealtyTrac. The main ratings agencies slashed to junk the ratings on more than $100bn in subprime mortgage- backed bonds in the past month.

The ABX index, which tracks such bonds, has fallen sharply in recent months. The riskiest slice of the index, which tracks bonds rated BBB-, has fallen about 80 per cent this year.

Fed Injects $41 Billion Into US Financial System to Help Ease Credit Problems

WASHINGTON (AP) -- The Federal Reserve pumped $41 billion into the U.S. financial system Thursday, the largest cash infusion since September 2001, to help companies get through a credit crunch.
The action came one day after Fed Chairman Ben Bernanke and all but one of his central bank colleagues voted to slice a key interest rate. It was the second time in six weeks that policymakers acted to protect the economy from the effects of the housing downturn and credit troubles.

Wall Street took a nosedive with the Dow Jones industrials losing 362.14 points to close at 13,567.87.

The Fed on Wednesday ordered its key rate, called the federal funds rate, to be lowered by one-quarter of a percentage point to 4.5 percent. That followed up on a half-percentage point cut in September. Those two rate reductions might be sufficient to help the economy make its way safely through trouble spots, Fed policymakers indicated.

The funds rate affects many other interest rates charged to millions of individuals and businesses and is the Fed's most potent tool for influencing economic activity.

The Federal Reserve Bank of New York, which carries out the central bank's open market operations, moved Thursday to inject $41 billion in temporary reserves into the financial system.

A New York Fed spokesman said it was the largest single day of operations since $50.35 billion was pumped into the system on Sept. 19, 2001, following the terrorist attacks on New York and Washington. He declined further comment.

Fed policymakers at their meeting on Wednesday noted that the "strains from financial markets have eased somewhat on balance." In the past week, many Fed officials have described the state of financial markets as fragile.

Bernanke and other Fed officials have said it will take time for the markets to fully recover from the credit crisis.

Since August, the Fed has been pumping cash into the financial system to help ease strains from the credit crunch. It also has cut its lending rate to banks -- a third such cut came on Wednesday.

Technical Analysis for Major Currencies

EURO

The European currency last week accelerated towards the upside target at 1.4390s successfully breaching the key level at 1.4340s affecting the technical parameters to show the progressive pattern to the upside direction due to the absence of the US dollar strength to set the upside target at 1.4430s in the week ahead.

The trading range for today might be between the key resistance level at 1.4450 and the key support level at 1.4300.

The general trend is up as far as 1. 3860 remains intact targets now at 1.4500 and 1.4780

Support: 1.4382, 1.4350, 1.4325, 1.4288, 1.4268
Resistance: 1.4411, 1.4426, 1.4466, 1.4478, 1.4510

GBP
The British pound last week moved to the top of the bullish move to reach the area around the 2.0500, but it made the upside shadows for the last couple of days to indicate that the pound is moving to the upside with low momentum. Therefore, we expect the pound to drop down today.

The trading range for today might be between the key resistance level at 2.0600 and the key support level at 2.0400.

The general trend is up as far as 1.9700 remains intact targets now at 2.0635 and 2.0740

Support: 2.0477, 2.0419, 2.0409, 2.0370, 2.0355
Resistance: 2.0545, 2.0570, 2.0600, 2.0626, 2.0658

Recommendation We expect selling sterling below 2.0550 with a target at 2.0470 stop loss above 2.0440.

JPY
The dollar against the Japanese yen last Friday closed in a quiet bearish pattern with long shadows to indicate the low momentum level. In the meantime, the currency managed to touch the downside trend line to close below it, so we see a bearish move for the pair today.

The trading range for today will be between the key resistance at 114.80 and the key support at 113.00.

The general trend is down as far as 124.60 remains intact, targets at 112.40 and 111.20.

Support: 114.20, 113.95, 113.73, 113.40, 113.18
Resistance: 114.78, 115.05, 115.22, 115.47, 115.77

Recommendation: We expect selling USD/JPY below 114.50 with a target at 113.80, stop loss above 115.25.

CHF
The dollar against the SWISS Frank moved to the downside in a slight quiet move since the pair lacked volume, and the technical studies almost confirmed the downside signals which in role pushed the currency down.

The trading range for today will be between the key resistances at 1.1700 the key support at 1.1580.

The general trend is down as far as 1.2540 remains intact, targets at 1.1445 and 1.1230.

Support: 1.1630, 1.1609, 1.1580, 1.1558, 1.1536
Resistance: 1.1655, 1.1677, 1.1700, 1.1730, 1.1770

Recommendation: We expect selling USD/CHF below 1.1660 with a target at 1.1590, stop loss above 1.1700.

CAD
The dollar against the Canadian progressed to the downside as it couldn't breach through the main level last Friday at the levels of 0.9670s to reach down until 0.9580s support. At the same time, the technical indicators have adjusted to reflect the downside targets until the levels of 0.9560s by today.

The trading range for today will be between the key resistance at 0.9700 and the key support at 0.9540.

The general trend is down as far as 1.0850 remains intact, targets will be at 0.9450 and 0.9320.

Support: 0.9632, 0.9609, 0.9579, 0.9544, 0.9535
Resistance: 0.9685, 0.9722, 0.9744, 0.9767, 0.9790

Recommendation: We expect selling USD/CAD below 0.9650 with a target at 0.9580, stop loss above 0.9700.

Forex Technical Update

Euro: Euro's bull run accelerated from 1.4124 levels to 1.4413 levels last week. Euro is currently trading around 1.4400 levels with the 4-hourly and daily stochastics extremely overbought. However, if Euro holds above 1.43 levels (38.2% retracement of the recent rise); further upside to the extent of 1.4535 could be witnessed. Caution is required while initiating fresh positions with the bearish divergence condition in the charts. Medium term outlook 1.40 (eur/usd - 1.4405).

Pound: Cable after plunging to 2.0243 levels early last week on account of unwinding of carry trades; rebounded to the extent of 2.0570 levels. Currently Cable is trading around 2.0540 levels, and rally is still in force to the next resistance of 2.0592 as long as Cable holds above 2.0435 (21 Days EMA in Daily chart). Breaking of this level can further push Cable to the levels of 2.0652 (Recent Top). Although, the daily charts are overbought, the 4-hourly and hourly charts still has scope for an upside movement. Avoid initiating longs at these levels. Key Focus of the week is FOMC rate decision on Wednesday. Medium Term outlook 2.0200 (gbp/usd - 2.0543).

Yen: Yen continued to trade in a sideways range and witnessed a move of about 65 pips in the last trading session. Currently Yen is trading around 114.22 levels and is facing resistance at 115.00 levels (38.2% Retracement of the recent fall). The overall outlook remains bullish for Yen below 116.00 levels (61.8% Retracement and 55 Days EMA). Medium term target - 112.00 (usd/jpy - 114.22).

Rupee: Rupee recovered strongly after touching 39.93 levels last week. Rupee opened slightly strong at 39.38 and made an intraday high at 39.35 today. Consolidation around these levels is expected for sometime. Exporters should look for opportunitues to cover their exposures at spikes near 40.00 Medium Term target: 39.00 (Friday's closing 39.46).

Swiss Franc: Swissy remained highly volatile last week. It strengthened to the extent of 1.1619 levels on Friday. Currently, the pair is trading around the 1.1630 levels (close to the recent low of 1.1600). Although the 4-hourly stochastic is in the oversold region, it has flattened. The overall outlook remains bullish for Swissy below 1.1800 levels (55 Days EMA in the daily chart). Medium term outlook remains 1.15. (usd/chf-1.1636)

Gold: Gold strengthened almost $40.00 last week recovering from $745 levels. Gold continues to record fresh new highs and is currently trading around $792 levels (nearing our mentioned Medium Term Target). The overall outlook remains bullish on Gold. However, the charts are extremely ovebought and initiating positions at these levels is not advisable. Medium term outlook $800. (Gold-$792.3)

Trend traders have surley been rubbing their hands over the past few week. The Euro, Aussie dollar and Canadian dollar have all been very "trendie" against the US dollar over the past few weeks and longer. For all those traders who go against the trend and try and pick tops and bottoms, their trading accounts must be a little bit lighter. The 3 Duck's Trading System has surley kept me on the winning side over the last few months and also helped me resist the temptation of trading against the trend and selling "tops".
The 3 Duck's Trading System was "released" into the wider trading community about two months ago, the feedback was very positive. I hope the system as made you a bit wiser and richer. I like the simplicity of this system and its common sense approach to price observation.

Market Directions Sunday, October 28, 2007

The Euro’s cautious approach to history

There was essentially no new information produced on either side of the Atlantic this week. The few statistics released in the US and the EMU did nothing to dampen the Euro’s rise. If traders could not quite bring themselves to vault the Euro into the unknown on their own they did nothing to disguise their desire to do so.

Forex is a conservative market. Amid nearly universal expectation for a 0.25% cut in the Fed Funds rate next Thursday, the Euro broke new ground against the Dollar just twice this week, Monday and Friday. There were no breakouts, no stop loss induced buying and, except for the more than 200 point fall on Monday at the London open, no breathtaking volatility.

It was only last Friday, the 19th, that interest rate futures traders became certain that the Fed would drop the Funds target rate to 4.5% at the FOMC meeting on October 31st. Their conviction was supplied by the large fall in the American equities that day. The day before, on Thursday, the futures had priced the chance of a 25 basis point cut at less than 50%.

Last Friday, as the US equities sank the high in the Euro was 1.4317; the top on Monday was 1.4347, and the final peak at the end of the week was 1.4392. For a market embarked on a new relationship between the Euro and the Dollar it was an oddly muted beginning. Violent moves in forex are usually the result of stop loss orders placed to close existing positions. It much less common for large stops to have gathered for initiating new positions; completely new trading levels are very rare indeed.

Despite the apparent reluctance to test for buy stops in the Euro above 1.4400, the New York Friday close at 1.4391 insures that if they exist, Sidney and Auckland will find them on Monday morning. It will be a nervous weekend for Asian bank traders.

The Week in Review October 22 - October 26
United States
Very little substantive information was released about the US economy during the week and what was available was uniformly bad; though only the weak Durable Goods numbers could have been considered at all unexpected. At -1.7% against the forecast for a gain of 1.8% and accompanied by a -0.4% revision to the August result, they added to the Dollar’s woes despite their well known month to month volatility. New Home Sales shrank marginally from August, as the price discounting by home builders may be nearing market clearing levels. But Existing Homes Sales continued their prolonged slide into September dropping another 8.0% over the month. Neither statistic provided any new insight to the state of the US housing market.

The 134.78 point addition to the Dow average on Friday, closing at 13,806.70, was more indicative of market confidence that the Fed will be forced to act on rates, than a judgment that the US economy is headed towards stronger growth and low inflation into 2008.

Eurozone
ECB governing board members remained publicly unsympathetic to the political and economic difficulties attendant on the Euro’s record gains against the Dollar. Nicholas Garganas, head of the Greek Central Bank, and not one of the most hawkish of the govenors said, “ I would characterize FX movements as normal so far”. A comment which makes sense if one checks volatility but not levels. Alex Weber, one of the ECB’s long time anti-inflation stalwarts and head of the Bundesbank, commented that, “We interrupted the tightening cycle only because of the financial market turbulence”. His view was pointedly to the past; he did not offer any speculation of future ECB policy. But Mr. Weber has rarely given countenance to economic concerns, his remark did not provoke any reaction from Euro traders.

Industrial Orders improved considerably less than expected in August, rising only 0.3% and 5.1% for the year, against expectations of +0.9% and +6.2%. But as July’s results were revised higher by 1.4% to -2.6%, and both June and May were shifted down, the net trading effect was zero. Flash Manufacturing PMI at 51.5, 1.5points below the median forecast, was offset by the services number which was almost the same amount above expectations. Both numbers will be revised twice more.

Dear Traders,

A bad week for the USD as it has hit virtual all time lows vs the euro, aud and cad. Oil hit an all time high on Friday and this theme is expected to continue into next week. I know a lot of traders continue to go long usd/cad and short eur/usd as they attempt to pick a bottom in the USD but like I have said before, this is a losing strategy in the long run as it is very tough to predict tops and bottoms in the forex markets. Your chances are just as good as winning the lottery. However retail traders continue to short eur/usd and get punished in the process. This certainly explains why over 90% of retail traders lose money and forex brokers continue to make millions!

Looking at the week ahead there are 2 major event risks that stand out. One is on Wednesday where the FOMC interest rate decision which will be due at 2.15pm EST. This is on Halloween and the market will be expecting a "treat" from the Federal Reserve in the form of a 50 basis point reduction. A 100% chance there will be a 25 basis point cut but there are many on Wall Street who are arguing for a 50 basis point cut. If the FED really cuts by 50 basis points Oil will be well over $100 bucks and the Euro will be above 1.45 level. The Federal Reserve and the Bush administration definitely want a weaker USD, so it is possible we might see a 50 point cut. A 25 basis point cut might give the USD a relief rally, but I believe all USD rallies should be sold as the FOMC will probably cut at their next meeting. I saw an interview on CNBC with former Treasury secretary John Snow and from the tone of his conversation he also implied that the USA wants a week USD as it will help with their exports. Microsoft on Friday reported block buster earnings and I am sure the weak USD definitely helped their bottom line. The second event risk will be on Friday in the form of NFP. The market expectation is for around 110,000 new jobs to be created. This looks like a very optimistic number indeed and this news event will be closely watched by the fx markets.

Lets take a look at what major news releases are due out next week, on Monday we have nothing and on Tuesday we get the consumer confidence numbers. Wednesday we will get GDP results for Canada and the USA. But all eyes will be focused on the FOMC later on in the session so the GDP numbers might have a muted reaction in the forex markets.

Thursday we will get the CORE PCE deflator numbers followed by the ISM manufacturing numbers. Again both these reports might get a muted response from the fx markets because on Friday the big enchilada is due - NFP numbers at 8.30am EST.

Definitely a market moving week coming up, the main focus will be the FOMC on Halloween.

Take care

Email...

Dollar Hit Record Low

The dollar extended its loss versus the euro and sterling on expectations that the Fed may cut interest rates again next week. The dollar index slumped to a fresh all-time low at 77.035. The euro approached 1.44 versus the dollar, while the sterling rose to as high as 2.0571.

This week's economic data, including housing sales, durable goods orders, weekly jobless claims and today's consumer sentiment index, all showed signs of economic growth slow down. University of Michigan consumer sentiment index fell from 83.4 to 80.9 in October, below the estimate of 82.

It is widely expected that the Fed will lower rates by a quarter-percentage point to 4.00%. Under the pressure of housing slump and rising credit costs, the nation's economic growth may slow down in the future. The overall sentiment on the dollar is bearish.

Eurogroup Chairman Junker said in a newspaper interview published today that last week's G7 statement limited to the yuan showed they did not reach agreement on the yen and dollar foreign exchange range. He added that he preferred a stronger euro and the currency's current trading level was not yet an alarm-causing level. The euro may rise further to reach next target area at 1.4420-50 versus the dollar.

EURUSD will face interim resistance at 1.44, followed by 1.4420 and 1.4450. Additional ceilings will emerge at 1.4480, backed by 1.45. Support starts at 1.4350, backed by 1.4320, 1.43 and 1.4280. Subsequent floors are eyed at 1.4250.

GBPUSD encounters interim resistance at 2.0550, backed by 2.0570 and 2.06. Subsequent ceilings will emerge at 2.0620, followed by 2.0650 and 2.0680. On the downside, support begins at 2.05, followed by 2.0470 and 2.0450. Additional floors are eyed at 2.0430, backed by 2.04 and 2.0350.

Rising Oil Boosted CAD & AUD

Rising oil prices boosted the commodity currencies, such as the Canadian dollar and the Australian dollar. Crude Oil hit record high at 92.22 per barrel today. The Canadian dollar strengthened to 0.9592 versus the dollar, while the Australian dollar rallied to 0.9176 against the dollar. With increasing demand of gas in the coming winter, oil prices are likely to surge higher.

Yen Fell on Core CPI Decline

The yen fell against high yielding currencies after a report showed core inflation declined in Japan, indicating the end of deflation fight may delay. Excluding food and energy prices, core CPI dropped 0.1% in September. The euro rose from 163 to round 164.50 versus the dollar, and the dollar remained around 114 against the dollar.

USDJPY encounters interim resistance at 114.30, backed by 114.50 and 114.80. Subsequent ceilings will emerge at 115, followed by 115.20 and 115.50. On the downside, support begins at 114 and 113.80, followed by 113.50. Additional floors are eyed at 113.20, backed by 113 and 112.70.

FXstreet.com (Barcelona) – Consumer confidence fell to the level of 80.9 points in October, from the 83.4 points registered in September, according to the latest report by University of Michigan.

The market consensus was a smaller decline to the level of 82.0 points. Current Conditions Index dropped to the level 97.6 points in October from the 97.9 points posted in September. Expectations registered a reading of 70.1 points in October, down from the 74.1 points in previous month.

The decline in confidence was mostly due to the decreasing home prices. The report also remarks that confidence index remains above the level which signals imminent recession.

Crude Oil and Gold Post Sharp Gains Early

Friday, October 26--Jim Wyckoff's Morning Web Log

OVERNIGHT/EARLY MORNING DEVELOPMENTS

The market features in overnight/early morning trading today are solidly higher crude oil prices that pushed above $92 a barrel overnight, and sharply higher gold prices that hit a fresh 11-month high.

* JIM'S MARKET THOUGHT OF THE DAY *

With crude oil and gold prices soaring today, these two key “outside markets” will likely pull many other commodity futures markets higher today, inviting fresh speculative interest on the long side of the these markets.--Jim



U.S. STOCK INDEXES

The stock indexes are slightly higher in early morning electronic trading.

December S&P 500: The shorter-term moving averages (4-, 9- and 18-day) are bearish early today. The 4-day moving average is below the 9-day and 18-day, but is turning up. The 9-day is below the 18-day moving average. Short-term oscillators (RSI, slow stochastics) are neutral early today. Today, shorter-term technical support comes in at the overnight low of 1,521.80. Sell stops likely reside just under that level. More sell stops likely reside under shorter-term technical support at 1,510.00. Upside resistance for active traders today is located at the overnight high of 1,529.20 and then at 1,535.00. Buy stops are likely located just above those levels. Wyckoff's Intra-day Market Rating: 5.0

Today's key near-term Fibonacci support/resistance level: 1,540.00.

PIVOT POINT LEVELS FOR DECEMBER S&P 500:

Pivot:------------ 1,520.05
1st Support:------ 1,510.60
2nd Support:------ 1,496.05
1st Resistance:--- 1,534.60
2nd Resistance:--- 1,544.05

Nasdaq Index: The shorter-term moving averages (4- 9-and 18-day) are bullish early today. The 4-day moving average is above the 9-day. The 9-day average is above the 18-day. Short-term oscillators (RSI, slow stochastics) are neutral to bearish early today. Shorter-term technical support is located at 2,180.00. Sell stops likely reside just below that level, and then more sell stops are likely located just below technical support at Thursday’s low of 2,159.00. On the upside, short-term resistance is seen at the contract high of 2,221.00 and then at 2,235.00. Buy stops are likely located just above those levels. Wyckoff's Intra-Day Market Rating: 6.0

Today's key near-term Fibonacci support/resistance level: 2,187.00

PIVOT POINT LEVELS FOR DECEMBER NASDAQ:

Pivot:------------ 2,190.70
1st Support:------ 2,161.60
2nd Support:------ 2,129.95
1st Resistance:--- 2,222.35
2nd Resistance:--- 2,251.40

December Dow: Sell stops likely reside just below support at 13,700 and then more stops just below support at Thursday’s low of 13,585. Buy stops likely reside just above shorter-term technical resistance at Thursday’s high of 13,775 and then just above resistance at 13,900. Shorter-term moving averages are bearish early today, as the 4-day moving average is below the 9-day and 18-day, but is turning up. The 9-day moving average is below the 18-day moving average. Shorter-term oscillators (RSI, slow stochastics) are bullish early today. Wyckoff's Intra-Day Market Rating: 6.0

Today's key near-term Fibonacci support/resistance level: 13,763

PIVOT POINT LEVELS FOR DECEMBER DOW:

Pivot:------------ 13,700
1st Support:------ 13,624
2nd Support:------ 13,510
1st Resistance:--- 13,814
2nd Resistance:--- 13,890

U.S. TREASURY BONDS AND NOTES

U.S. T-Bonds and T-Notes futures prices are lower early today. However, bulls still have some near-term technical momentum on their side after early-week gains.

December U.S. T-Bonds: Shorter-term moving averages (4- 9- 18-day) are bullish early today. The 4-day moving average is above the 9-day and 18-day. The 9-day is above the 18-day moving average. Oscillators (RSI, slow stochastics) are neutral to bearish early today. Shorter-term technical resistance lies at 113 24/32. Buy stops likely reside just above that level. More buy stops likely reside just above technical resistance at 114 even. Shorter-term technical support lies at the overnight low of 113 13/32. Sell stops likely reside just below that level. More sell stops are likely located below support at 113 5/32. Wyckoff's Intra-Day Market Rating: 5.0

Today's key near-term Fibonacci support/resistance level:112 21/32

PIVOT POINT LEVELS FOR DCEMBER T-BONDS:

Pivot:----------- 113 25/32
1st Support:----- 113 16/32
2nd Support:----- 113 9/32
1st Resistance:-- 114 even
2nd Resistance:-- 114 9/32

December U.S. T-Notes: Shorter-term oscillators (RSI, slow stochastics) are neutral to bearish early today. Buy stops likely reside just above shorter-term technical resistance at the overnight high of 110.25.0 and then just above resistance at 111.00.0. Shorter-term moving averages are bullish early today. The 4-day moving average is above the 9-day and 18-day. The 9-day is above the 18-day moving average. Sell stop orders are likely located just below support at the overnight low of 110.19.5 and then more sell stops just below support at 110.10.0. Wyckoff's Intra Day Market Rating: 5.0

Today's key near-term Fibonacci support/resistance level: 110.02.0

PIVOT POINT LEVELS FOR DECEMBER T-NOTES:

Pivot:------------ 110.28.0
1st Support:------ 110.21.0
2nd Support:------ 110.16.0
1st Resistance:--- 111.01.0
2nd Resistance:--- 111.08.0

U.S. Dollar Resumes Weaker Ways in Early Dealings

CURRENCIES

The December U.S. dollar index is lower in early trading today, and hit a fresh contract and all-time low overnight. Bears still have downside technical momentum. Slow stochastics for the dollar index are bearish early today. The dollar index finds shorter-term technical resistance at the overnight high of 77.21 and then at 77.53. Shorter-term support is seen at the overnight contract low of 77.01 and then at 76.75. Today's key near-term Fibonacci support/resistance level: 77.47 Wyckoff's Intra Day Market Rating: 2.0

The December Euro is higher in early electronic trading and hit a fresh contract and all-time high overnight. The Euro finds sell stop orders are likely located just below technical support at the overnight low of 1.4297 and then more stops just below support at 1.4250. Shorter-term technical resistance for the Euro is seen at the overnight contract high of 1.4355 and then at 1.4400. Buy stops likely reside just above those levels. Slow stochastics for the Euro are bullish early today. Today's key near-term Fibonacci support/resistance level: 1.4278. Wyckoff's Intra Day Market Rating: 8.0

GOLD

Gold is trading solidly higher in early dealings today and hit a fresh 11-month high overnight. For December gold, shorter-term technical support is seen at $775.00 and then at the overnight low of $771.80. Sell stops likely reside just below those levels. Buy stops likely reside just above resistance at the overnight high of $782.20 and then just above resistance at $785.00. Today's key near-term Fibonacci support/resistance level: $770.00. Wyckoff's Intra-Day Market Rating: 8.5

CRUDE OIL

Crude oil prices are solidly higher in early electronic dealings and set new highs again overnight. In December crude, look for buy stops to reside just above resistance at the contract high of $92.22 and then just above resistance at $93.00. Look for sell stops just below technical support at the overnight low of $90.20, and then more sell stops just below support at $89.00. Today's key near-term Fibonacci support/resistance level: $89.50. Wyckoff's Intra-Day Market Rating: 9.0

GRAINS

Prices were higher in overnight trading, amid solid gains overnight in the key “outside markets” like gold and crude. The U.S. dollar is also weaker, which is bullish for grains at present. Wheat bears still have some downside technical momentum, and if wheat sees sharp losses today, then corn and soybeans will find gains limited.

US Reuters/Michigan Consumer Sentiment Index decreases to 80.9 in Oct from 83.4

EUR/USD: New all-time high and keeps climbing

Fri, Oct 26 2007, 10:07 GMT

FXstreet.com (Barcelona) – The Euro has reached a new all time high at 1.4244 before closing at 1.4325 at the end of the session, according to Mohamed Isah, technical analyst at FXTechstrategy, this move puts an end to the recent correction: “This new development has ended its recent corrective pullback taking it to as low as 1.4125 early this week. With a return above the 1.4300 levels, a decisive break and close above its Sept 28’07/New Year high/1.272 Fib Ret (daily chart) at 1.4342/63 is now expected with scope for price extension towards its 1.618 Fib Ext. /weekly rising channel top at 1.4463/68 and above at its 1995 high at 1.4535.Though the daily RSI has turned higher, it is yet to break through its falling trendline.”

On the downside, Isah advances: “However, if the attack on the 1.4342/63 zone proves unsuccessful, lower prices could be seen targeting the 1.4250/81 zone, its 1.272 Ext. (monthly chart)/Sept 28’07 high where an invalidation if it occurs, will trigger downside losses towards its Monday low/rising trendline at 1.4126/25.Below there will put attention on the 1.4033/00 zone, its Oct 05 & 09’07 lows/psycho level and then the 1.3926,its Sept 13’07 high.”

LOL

Financial News - US & Far East
Stocks Off on Mixed Data
USD drop on growth concern
Oil higher
Japan CPI falls as expected
Asian stocks rose
Today's Main Events
USD Michigan Confidence
American Timezone:
Stocks Off on Mixed Data

U.S. stocks veered erratically Thursday on a mix of economic data, record oil prices, corporate earnings and fretting about the economy, with the Dow industrials recovering late in the day after falling more than 100 points earlier on.

USD drop on growth concern

USD fell a third straight day against EUR as an unexpected drop in U.S. orders for durable goods and higher than forecast initial jobless claims signalled economic growth may weaken.

Investors pushed the U.S. currency to within 0.1 cent of its record low as the statistics fueled bets the Federal Reserve will cut interest rates by at least a quarter percentage point at their meeting next week.

Oil higher on supply drop

The oil price rose above USD 90 to a record the day after the US supply figures showed an unexpected drop in US stocpiles.

New US sanctions against Iran, warnings of a Turkish assault on Kurdish militants in Iraq and a falling USD also pushed the price higher.

Far East Timezone:
Japan CPI falls as expected

Japanese core consumer prices fell from a year earlier in September, as expected, marking the eighth straight month of decline and doing little to change expectations that the Bank of Japan's monetary policy will be on hold for now.

The government said on Friday it would not include the new, cheaper mobile phone fees that could have trimmed 0.3 percentage point or more from core CPI.

After the latest CPI and output data, swap contracts on the overnight call rate are pricing in less than a 20 % chance of a BOJ rate rise by the end of this year, little changed from the level before the data.

Oil tops USD 91 on supply worries, Middle East tensions

Oil prices extended gains to a new all-time high of USD 91.10 a barrel in early electronic trade on Friday, bolstered by supply concerns during the northern Hemisphere winter and growing political tensions in Middle East.

NYMEX crude for December delivery, which rose to a record high of USD 91.10 barrel, was up 31 cents at USD 90.77. U.S. crude settled up USD 3.36 to USD 90.46 a barrel on Thursday after striking a record USD 90.60.

London Brent crude also hit a new record high of USD 88.01 a barrel.

Earnings, oil help lift Asian stocks to another high

Asian stocks hit an all-time high on Friday as upbeat earnings from the likes of Sony Corp lifted investor sentiment, while a rally in oil prices to a record high above USD 91 a barrel boosted energy shares.

Swept up by the surge in U.S. crude, gold rose to USD 773 an ounce, its best level in 28 years

Asia Market Update

The AUD rises to a new 23 yr high above $0.9100

Japan's September core inflation drops: (JP SEPT NATIONAL CPI YOY: -0.2% V -0.1% expected, -0.2% prior; CORE YOY: -0.1% V -0.1% expected, -0.1% prior) The inflation data reinforces the consensus that the Bank of Japan will keep interest rates on hold while waiting for clarity on the U.S. economic outlook. Responding to the data, Economics Minister Ota said that the declaration of the end of deflation has been delayed. The Japanese government said that it would not incorporate cheaper mobile phone fees into future CPI calculations, and some analysts suggest that the change in calculation could lead to a y/y rise in next month's inflation data

Japanese economy takes a hit from September's credit market chaos: (JP SEPT PRELIMINARY INDUSTRIAL PRODUCTION MOM: -1.4% V -1.2% expected, +3.5% prior; YOY: 0.8% V 1.2% expected, +4.4% prior) The JPY softened in the moments after the release as September's industrial production data suggests that the Japanese economy was badly hit by recent market turbulence. However, analysts say that the uptrend for industrial production remains intact, and output is expected to continue to be firm toward next year on the back of solid exports to Asia and Europe

Forex: The AUD rose to a new 23 yr high (above $0.9100) on carry trades. The NZD is currently higher across the board on yield demand (NZD/USD is above $0.7600, and NZD/JPY is above 87.00). The USD is weaker against most currencies with the exception of the yen and the USD index is currently off by about 0.04%. The yen is weaker across the board on a rise in risk appetite due to positive earnings from Microsoft and the rise in the Nikkei.

Asian Equities: The Nikkei 225 is higher by more than 0.60% on gains in shares of Sony (earnings), Honda (earnings) and commodities related shares (rise in oil and gold prices). The ASX 200 is higher by more than 0.75% on gains in shares of resource stocks. The Kospi is higher by more than 1% on gains in shares of Hyundai Motors (positive broker commentary) and oil refiners. Chinese equities are currently little changed, while the Hang Seng opened at a new record high and the index is currently higher by more than 1% and trading above the 30,000 level.

Commodities: NYMEX crude oil prices are trading near record levels (around $90.90/bbl) on supply fears, the weaker USD and geopolitical concerns in the Middle East. Earlier during the Asian session crude rose to a new record high of about $91.10/bbl. Spot Gold is higher by more than 0.50% and trading around $776/oz, after the metal touched a new 28 yr high earlier during the Asian session. Gold continues to track the weakness in the USD and gains in oil prices.

Nice night so far...

SOLD AUD/JPY 103.15

SOLD EUR/JPY 162.85
SOLD GBP/JPY 233.70

US Dollar Tumbles As Futures Start To Price In A 50bp Cut

Is The Euro's Value Really Hurting the European Economy?

Commodity Dollars Hold Strong On Hot Aussie CPI, Hawkish RBNZ
US Dollar Tumbles As Futures Start To Price In A 50bp Cut
After a choppy afternoon of trading, the US dollar finished the day very little changed despite the release of extremely gloomy housing data. Existing home sales plummeted 8.0 percent to 5.04 million during the month of September - the lowest reading since the National Association of Realtors started keeping records in 1999. Single family home sales fared the worst, as they declined 8.6 percent from the month prior, while condo/coop sales fell 4.3 percent as tighter lending standards and higher mortgage rates make it more difficult to get financing. Meanwhile, supply levels rocketed to 10.5 months while the median price on total existing home sales dropped to $211,700 from $224,400. With inventory levels growing and demand clearly waning, it appears that prices will continue to fall much lower. While the greenback didn't necessarily take the news to heart, fixed income traders apparently did as Fed fund futures now price in an 86 percent chance of a 25 basis point cut on October 31st. Though this is slightly lower than yesterday, futures are also starting to price in a 14 percent chance of a 50 basis point cut at the end of the month as it becomes clear just how dire the housing situation has become, especially in regards to its detrimental effects on the US economy. The New Home Sales release on Thursday will likely reinforce that sentiment, as the index is predicted to plummet 3.1 percent to 770K. However, dismal news from the hosuing sector will not be entirely surprising to the markets and as a result, traders may focus more on the Durable Goods Orders release instead. The headline figure is predicted to improve 1.5 percent and will likely be buoyed by the transportation component, as Boeing reported that orders picked up to 132 in September from 75 during the month prior. Excluding this factor, durable goods orders may only rise a more tepid 0.7 percent, but any surprisingly strong figures could prove beneficial for the Dow, while the US Dollar may continue to be plagued by Fed rate cut speculation.

Is The Euro's Value Really Hurting the European Economy?
Is the appreciation of the Euro negatively impacting businesses in the Euro-zone? It depends on who you ask. The purchasing managers index (PMI) for the manufacturing sector dropped down to a reading of 51.5 from 53.2 as new orders and output lagged amidst softer export demand. While this indicator still indicates expansion, this PMI reading marks the fourth consecutive decline in activity, suggesting the sector is facing a marked slowdown. On the other hand, PMI for the services sector proved to be far more optimistic at 55.6 - up from 54.2 - as healthy labor markets help fuel domestic demand. The release of the German IFO surveys on Thursday will provide additional information regarding investor sentiment, as indications that businesses remain leery of credit conditions could prevent the ECB from taking on a staunchly hawkish tone.

Commodity Dollars Hold Strong On Hot Aussie CPI, Hawkish RBNZ
The high-yielding New Zealand and Australian dollars held fairly strong as inflation pressures leave both the RBNZ and RBA with a hawkish bias. As was widely expected, the RBNZ left rates steady for the second consecutive month at a record high of 8.25 percent, however, the monetary policy statement signaled a slight tightening bias. Indeed, RBNZ Governor Alan Bollard noted that the 'labor market remains tight, domestic income growth continues to expand on the back of strong commodity prices, and core inflationary pressures persist.' While Bollard also noted that there were signs that 'the housing market is moderating,' multiple upside inflation risks suggest that a rate cut is not in the cards in the near-term. Meanwhile, core inflation in Australia accelerated at the fastest pace in 16 years during Q3, sparking speculation that the RBA will hike on November 7th. However, there is still a chance that the central bank will hold off on tightening monetary policy, as such a move would likely reduce the odds that Prime Minister John Howard will win the upcoming Federal Election on November 24th.

Japanese Yen: Trade Surplus Not As Optimistic As It Appears
The Japanese yen gained some traction as heavy losses in the Dow throughout most of the New York trading session carried pairs like USDJPY and EURJPY lower. Meanwhile, on the surface, Japanese trade balance data looked bullish as the merchandise surplus widened during the month of September to 1.638 trillion yen. However, a breakdown of the figure shows that the increase in the surplus was the result of a 3.2 percent drop in imports, suggesting that spending on the part of businesses and consumers alike in Japan is diminishing. Meanwhile, export growth also eased back as shipments to both the US and Europe have fallen. Nevertheless, demand from other regions in Asia is anticipated to keep trade levels relatively healthy going forward and supports the optimistic claims of various Bank of Japan monetary policy committee members and fiscal officials that expansion is set to keep pace. However, these constantly changing outlooks will not be enough to allow the BOJ to raise rates before year end given the soft household spending and persistent deflation that the economy faces. Indeed, if the central bank were to pursue further rate normalization regardless of these factors, they would likely exacerbate the current problems and possibly even set the stage for a recession. Thus, we expect them to take a more prudent course and wait until consumer price growth turns positive once again and economic conditions stabilize before even considering taking their ultra-low benchmark lending rate from 0.50 percent to 0.75 percent.

BUY EUR/JPY 162.60
BUY GBP/JPY 233.38
BUY AUD/JPY 102.79

Jim Rogers quits dollar after declaring US recession

By Mark Kleinman in Hong Kong

Last Updated: 1:29am BST 25/10/2007

Jim Rogers, the veteran investor who predicted the 1999 commodities rally, declared that the US economy was "in recession" as he said he would take flight from the dollar and switch his investments into currencies including the Chinese yuan.

Japan and China lead flight from the dollar
Fears of dollar collapse as Saudis take fright
Mr Rogers, who ranks among the world's best-known investment figures, said he was putting his faith in China's politically-sensitive currency alongside the Japanese yen and the Swiss franc.

"I live in Asia. It is really not that strange that I am selling out of the US dollar," he told The Daily Telegraph. "All other things being equal during the next six months, that's the way I will go. But if the Swiss franc goes through the roof, I probably won't put money into the Swiss franc."

Mr Rogers' comments are followed slavishly by many members of the international investment communities, and his view that the US economy is in a worse state than that suggested by most economic commentators is likely to add to pessimism in some quarters about its health.

"The US economy is undoubtedly in recession," he said. "Many parts of industry are actually in a state worse than recession. If it were not for [Federal Reserve Governor Ben] Bernanke putting huge amounts of money into the market, the stock market would probably be down much more than it is."

Mr Rogers, a long-time enthusiast for investing in stocks hanging on the coat-tails of China's economic boom, said he had not altered his views about the booming Shanghai stock market.

Earlier this year, with the benchmark Shanghai index trading at around 4000, Mr Rogers, a former investment partner of George Soros, added his voice to the chorus of warnings about an incipient bubble forming in the mainland Chinese capital markets.

With the Shanghai Composite Index closing at 5843 points, Mr Rogers said he was relaxed about the market's continued growth.

"I still feel the same way. It's not a bubble yet - if it goes past 9000 in January I'll have to sell. Bubbles always end badly," he said. "I do not want to sell Chinese stocks. I want to own them forever and I want my [four year-old] daughter to own them."

Mr Rogers' comments came as Warren Buffett, the 'Sage of Omaha', urged investors to be cautious about the Shanghai market's surge, which has seen it rise by more than 125pc this year.

Speaking to Bloomberg during a visit to China, Mr Buffett said Berkshire Hathaway, the investment company he fronts, shied away from buying into soaring stocks.

Mr Buffett has been a major beneficiary of Shanghai's growth, reaping a profit of hundreds of millions of dollars from his stake in PetroChina, one of the world's largest companies by market value.

USD/CAD

The thrust higher once again to the 1.0 Fibonacci projection at .9717 has once again failed. This is a very bearish sign and still suggests that the 'line in the sand' at .9747 will remain intact.

Ready to get short? Not quite yet, if the equity market weakens further in late day trading, DXC and USD/CAD may move higher again. Now is the time to wait for the all pieces to come together.

Major Market Movers: More Horror!!!

After a month's cycle of tries that can not be underestimated in attempts to disclose the most adequate resolution to the current housing distress and the accompanying mortgages defaults after a 50 basis point cut; the data today provided further proof that the slump in the sector awaits the verdict in next week's FOMC decision…

The Existing Home Sales figures for the month of September showed today a decline to an annualized rate of 5.04 million units exceeding the fall seen in the disastrous month of August which was revised to the downside to a fall of 4.3% to 5.48 million units while today's reading was a fall much larger than expectations shedding 8.0% despite optimist expectations of just a 4.5% drop.

More comprehension and proof to the lagging performance of the sector has been added today from the US economy and deepening the expectations of the recessionary phase; the false attempts to restrain new restrictions on further secured mortgages did not have bright benefits to credit markets nor to the housing sector, as the slowdown continues to be seen in lower revenues margin reported by banks and large financial institutions. The threat on confidence is definitely skyrocketing as lower appeal is being seen on purchasing houses in the United States even as prices are at low levels and after the Fed cut rates by half a percent.

The aftermath of the housing is that as we said the reported losses in the financial sector, the issued report by Merrill Lynch & Co. one of the world's largest institutions; as they reported their losses in the quarterly report as the losses of a two year low of $8.4 billion as a result to the crash seen in the housing market and correlated investments from asset backed securities and subprime mortgages.

It was evident last week that markets have increased their intensity and volatility starting form the American markets and spreading to the rest of the world, and that led investors to lack all faith in all directions, as they now are tarnished to find the answer where is the solution the safest answer of the most profitable of them all.

Last but not least the final call is to be seen next week, as a cut on interest rates is not the only to be seen and much more is to be seen followed…

At the Close. Standstill.

London goes home having not cleared any of the questions I put up yesterday. In fact, today's price action has not been anything else than a 'bore' from a daily cahrt point of view, and quite nervious from an intraday point of view, with many spikes here and there that really led to nothing. Further, if you were to drive on to any conclusions using today's price action, I guess the conclusion would be: 'wait one more day'.

Indeed, what a tricky day today, with the USD up, then down, then back up and now down again, with no real triggers happening, well, that except of the current test-break?- of the intraday uptrend line in the Swissy. If that is confirmed, we could see the USD suffering from here.

Cable is the currency that is posing the biggest threat to the USD at present. The daily picture in Cable will only get beneficial for the USD when 2.03 is brokne back down, any other level out of that may lead speculators to push for that magic 2.10 they are envisaging (along with a 1.50 in EUR/USD). Today's price action one should take it as part of the market's nervousness at these levels, with the big hands wiating for the clear signal to attack and catch as many investors wrong-footed as possible, and feed themselves from their stops.

The only pairs today that made me smile were JPY crosses, but this time the fall in EUR/JPY (Stocks are down, too), was not accompanied by a fall in AUD/USD. The unit, despite breaking a dynamic support line, was able to hold the 50EMA in the 1hr chart and bounced off strongly, again not making the picture any nice for the USD. A break below 0.89 is needed for the USD to be in better shape, that is quite some distance from current prices anyway...

Some say that the proximity of the FOMC rate decision will keep the markets on hold, but I don't quite share that view, and I believe the market will go for a big move before the actual FOMC meeting takes place. As the market is already discounting further rate cuts, the direction of the move is quite difficult to predict, as such rate cuts have been priced in for over 1 month now...

Alright, time to say good-bye for now, as the Barcelona ITC (FXstreet.com) starts tomorrow and I'll be there these days. I hope I'll be able to post something these days, keep in touch with the market etc... anyway, I wish you a happy trading these days. Thank you very much for being there. Bye 4 now.



Posted by Tony Juste on October 24, 2007

Foreign Exchange Market Daily Update

Despite initially gaining ground in early morning trading, the U.S. dollar weakened against the Euro and Yen after weaker-than-expected U.S. existing home sales released for the month of September. U.S. home sales fell 8.0 percent in September to a record low of 5.04 million homes.

In other news Merrill Lynch announced a 2.3 billion dollar third-quarter loss with write downs totaling $7.9 billion due to investments in subprime mortgages. The weaker housing report coupled with Merrill Lynch's announcement will all but cement a Fed. rate cut of 25 basis points at next Wednesday's meeting.

The Euro initially weakened against the dollar, yen and pound as traders moved to safer haven investments, but managed to gain some ground on the weak housing data. Also releasing out of the Euro Zone was Manufacturing PMI figures which fell to 51.5 in October, while the services number strengthened to 55.6. Look for the Euro to push higher as fundamentals take focus, with the Euro Zone/U.S. interest rate differential moving in favor of Europe's single currency.

Sterling weakened against both the yen and the dollar as stock markets tumbled and investors pulled money out of the carry trade. With little UK data due out, look for the pound to remain range bound as the market digests a likely rate cut from the Fed. next week.

The Japanese yen strengthened against its U.S. counterpart as the yen-funded carry trade unwound. Also releasing was Japan's merchandise trade surplus which climbed to its highest level at 1,638 billion. Look for the yen to hold on to its gains as investors continue to side line the carry trade.

The Canadian dollar weakened against the greenback as oil dropped. Oil prices fell to $85 a barrel off of Friday's record $90 a barrel. The market will start to look towards Canada's October Business Conditions Survey which is due out on Friday. Look for the loonie to remain range bound ahead of Friday's report.

The Australian and New Zealand dollars initially strengthened on strong Aussie inflation data, but couldn't hold on to their gains against the dollar as carry trades unwound. Australia's consumer price index rose 0.9 percent and was 2.9 percent higher year to date, cementing a rate hike from the Reserve Bank of Australia next month. With a rate hike priced into the market next month in Australia and the Reserve Bank of New Zealand expected to hold overnight rates at 8.25 percent, look for both currencies to track higher.

The Mexican peso weakened after consumer price data came in lower-than-expected at 0.32 percent, while core inflation rose higher-than-expected to 0.21 percent. The market will look towards Friday's Banxico meeting where expectations are that overnight rates will remain on hold at 7.25 percent.

U.S. Market Update

Dow -195 S&P -29 NASDAQ -75

U.S. equity markets retreat after another slew of earnings reports and a new gloomy snapshot of the housing market. AMZN -15% is weighing on the NASDAQ as traders fret over the guidance the company gave regarding operating margins. BRCM is down closer to 17% weighing on the SOX -4.5%. Boeing initially opened higher but has since given back more than a $1 post results. After opening underwater, Indices made a second leg lower after Sept existing home sales were reported at the lowest level in 10-years with continued rising inventories and declining prices. Home building stocks are down roughly 2-3% across the board. Financial stocks are at or near session lows as well as comments trickle out of the Merrill Lynch earnings conference call highlighting their announced $8B write down. These headlines have confirmed the very cautious tone in lending markets and spurred speculation that Lehman Brothers could be set to announce another large write down. U.S. Treasury markets have broken to the upside on the latest batch of equity weakness. The 10-year note future is up more than half a point and the Benchmark yield has slipped to 4.33%. The Nov Fed Fund Future contract fully prices in a 25bp cut next week and is beginning to put odds on 50bp. The Jan contract sees more than an 80% chance of a 4.25% fed funds rate by year-end. Oil futures rallied hard after weekly inventory data showed draws across all products. Crude, Distillates, and gasoline futures are each up close to 1.5%. Copper futures are making new 1-month lows down 2.2%.

The major currency pairs maintained their recent trading ranges for the month of October despite confirmation that Turkey has launched some military operations into northern Iraq to curb PKK rebel activities. In EUR/USD the pair briefly violated the 1.42 handle but hearing good sovereign names looking to purchase Euro on dips towards the 1.4150 approach. JPY price action is again inversely mirroring the overall equity price movements. The JPY is ending the European session on a firmer tone as stocks drift lower following below consensus US housing data and a drop in DOE crude inventory. EUR/JPY at 162.45, GBP at 233.70, USD/JPY at 114.09. Commodity related currencies retaining their overall firm tone as energy markets move higher following the weekly inventory report. USD/CAD at 0.97, AUD/USD at 0.9000. JPY flows also impacting these high yielders. European equities moving into negative territory following the US existing home data and energy inventories. FTSE off 0.2% at 6500, DAX off 0.2% at 7830, CAC lower by 0.1% at 5700. European Fixed income futures firmer. Dec Bunds are at 114.21 (up 50 ticks); Dec Gilts firmer by 40 ticks at 108.02.

Greenspan on air...

Greenspan: US Recession Chances Under 50%
Greenspan: Oil Price Has Supressed Econ Growth Everywhere
Greenspan In Milan: US Home Price Will Continue To Fall

Daily Economic Update

U.S. existing home sales fall; inventories of unsold homes rise

Existing home sales in September fell 8% in the month to an annualized 5.04 million units. The decline was greater than expected by the market. Weakness had generally been anticipated following earlier reports of plunging pending home sales. The decline followed a 4.7% drop in sales in August (previously reported as a 4.3% decline).

The weakness in sales was broadly based with single family home sales down 8.6% and the condominium component off by 4.3%. Inventories increased in September, although the increase was a relatively modest 0.4%. The measure of months' supply of unsold homes increased to 10.5 months from 9.6 months in August, the highest level for this measure since records began in 1999.

For the third quarter as a whole, existing home sales were an annualized 29.4% below their second-quarter average. Although inventories are down from their July peak, which represented the highest inventory level in the history of the series spanning back to 1999, they still remain highly elevated. Hence, construction activity will have to continue to be scaled back. This is consistent with our forecast that residential investment will move lower through next year, although we anticipate that the rate of decline should start to ease in 2008.

Declining activity in this sector alone is unlikely to undermine overall growth in the economy. However, the risks of a more pronounced moderation in GDP will rise if declining house prices start to weigh on household spending. Although consumer spending looks to have advanced at a fairly robust pace in the third quarter, our forecast assumes that consumer spending will advance at a more moderate pace closer to 2% in coming quarters.

Short lull in Canada's data flow

After yesterday's very positive retail sales report for August, there will be a lull in Canada's economic data releases today and tomorrow. The Business Conditions Survey for October and employment earnings for August will be Friday's offerings.

Daily Market Commentary - Fundamental Outlook

€

The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4190 level and was capped around the $1.4265 level. Technically, today's intraday high and low were right around the 23.6% and 50% retracement of the move from $1.4015 to $1.4395. The common currency moved lower after U.S. financial giant Merrill Lynch wrote down US$ 7.9 billion from earnings on account of subprime mortgage problems and said the conditions remain "uncertain." This reflects the troubled liquidity conditions faced by global financial firms this summer and to the extent that other U.S. financial institutions are forced to write down earnings, profits will be reduced in upcoming quarters and that will zap demand for U.S. assets and the U.S. dollar. Data released in the U.S. today saw September existing home sales off 8% m/m to 5.04 million annualized units, and were off 19% y/y. Continued dislocations in the U.S. housing sector could result in a rate cut by the FOMC on 31 October. In eurozone news, the EMU-13 manufacturing PMI survey fell to 51.5 in October from 53.2 in September while the services PMI survey improved 55.6. Also, it was reported that the eurozone August current account surplus was unchanged at €3.8 billion. Euro bids are cited around the US$ 1.4045 level.

¥/ CNY

The yen moved higher vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥114.10 level and was capped around the ¥114.95 level. Traders moved back into yen overnight as growing risk aversion reduced demand for higher yielding currencies. Data released in Japan overnight saw the September merchandise trade surplus rise a stronger-than-expected 62.7% y/y to a record ¥1.638 trillion. Notably, imports declined for the first time in more than 3.5 years. U.S. automakers complained overnight that the yen is being artificially devalued by the Japanese government. The Nikkei 225 stock index lost 0.56% to close at ¥16,358.39. Dollar bids are cited around the ¥113.85/ 112.60 levels. The euro weakened vis-à-vis the yen as the single currency tested bids around the ¥162.15 level and was capped around the ¥163.90 level. The British pound and Swiss franc came off vis-à-vis the yen as the crosses tested bids around the ¥233.40 and ¥97.05 levels, respectively. The Chinese yuan appreciated via-a-vis the U.S. dollar as the greenback closed at CNY 7.4930 in the over-the-counter market, down from CNY 7.5068. This represents the first time the pair has traded with a CNY 7.4 handle since the yuan was revalued in July 2005.

₤

The British pound weakened vis-à-vis the U.S. dollar today as cable tested bids around the US$ 2.0425 level and was capped around the $2.0515 level. Technically, today's intraday low was right around the 76.4% retracement of the move from $2.0655 to $1.9650. Cable bids are cited around the US$ 2.0270 level. The euro came off vis-à-vis the British pound as the single currency tested bids around the ₤0.6935 level and was capped around the ₤0.6960 level.

CHF

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1710 level and was capped around the CHF 1.1775 level. September producer and import prices will be released on Friday. Dollar offers are cited around the CHF 1.1835/ 1.1910 levels. The euro and British pound came off vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6690 and CHF 2.3990 levels, respectively.

A$/ NZ$

The Australian dollar appreciated vis-à-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.9045 level and was supported around the $0.8935 level. The pair moved within 30 pips of establishing a new multi-decade high. Traders bought A$ on increased expectations that Reserve Bank of Australia will lift its official cash rate by 25bps to 6.75% at its 6 November rate-setting meeting. Q3 headline CPI was up 0.7% q/q, stronger-than-expected, and up 1.9% y/y. Other data released in Australia today saw October skilled vacancies off 0.9% m/m. Australian dollar bids are cited around the US$ 0.8745 level. The New Zealand dollar weakened vis-à-vis the U.S. dollar as kiwi tested bids around the US$ 0.7465 level and was capped around the $0.7600 figure. New Zealand dollar bids are cited around the US$ 0.7465 level.

C$

The Canadian dollar depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the C$ 0.9720 level and was supported around the C$ 0.9645 level. The loonie established a new multi-decade high yesterday. U.S. dollar offers are cited around the C$ 0.9860 level.

SOLD GBP/USD 2.0461

SOLD EUR/USD 1.4236

Technical Analysis Daily: EUR/USD

EUR/USD 1.4260

EUR/USD Open 1.4254 High 1.4281 Low 1.4165 Close 1.4256

The Euro climbed against the US Dollar, and was trading close to its resistance level 1.4255, which is 61.5% Fibonacci of the correctional movement 1.4125 - 1.4346. Resistance is seen at 1.4277, followed by 1.4345 and 1.4405. Support is expected around 1.4205, followed by 1.4120 and 1.3980.

Technical resistance levels: 1.4277 1.4345 1.4405
Technical support levels: 1.4205 1.4120 1.3980

Trading range: 1.4270 - 1.4200

Trend: Downward



Sell at 1.4260 SL 1.4290 TP 1.4210

Yesterday we made +28 pips profit on EUR/USD from the following signal:

5:06 GMT Buy EUR/USD at 1.4191 SL 1.4165 TP 1.4241 exited at 6:26 GMT

SELL GBP/USD 2.0482

SELL EUR/USD 1.4251

STOPPED OUT EUR/USD

STOPPED OUT GBP/USD

RBNZ OCR Preview: Accentuate the Positive
OCR on hold for now at 8.25%, but RBNZ to confirm hawkish stance

RBNZ still in "wait and see" mode.
Expect a hawkish tone, albeit with acknowledgement of the weaker housing market.
Inflation is headed north; brace for more hikes in 2008.
The Reserve Bank was handed an awkward PR problem this week when government policy changes knocked some 0.3 percentage points off the Q3 CPI outturn, making inflation for the quarter a very tame 0.5% (1.8%yr). It's a hard sell justifying interest rates at 8.25% and a NZ dollar over USD0.76 when CPI inflation is sitting dutifully below the middle of the target band and the housing market looks to be screeching to a halt faster than expected.

Nonetheless, we think the RBNZ will give it a good go next Thursday.

The Government's recent policy changes, affecting prescription charges and early childhood education fees, are exactly the sort of one-off price changes that the Reserve Bank is entitled – indeed obliged – to look through, according to its Policy Targets Agreement. And focusing on the medium term, there are plenty of economic positives to accentuate, to explain inflation pressure. However, PR problem #2 is that these positives are birds in the bush rather than in the hand. The $3.6 billion of extra dairy cash (a startling 2.2% of GDP) is a done deal, but will not start to flow seriously into pockets until the last couple of months of this year. A fiscal lolly scramble next year was made more certain by the recent announcement of yet another accidentally enormous government surplus, but it remains an abstract concept at this stage.

The economic headwinds, on the other hand, are in our faces already: a sharply slower housing market, particularly the higher-risk end such as Auckland apartments, and obvious downside risk from still-fragile sentiment in international credit markets.

On balance, we are expecting the economy to truck along quite nicely, though the aggregate numbers will mask very disparate fortunes: between dairy farmers and apple growers; rural and urban; exporters and importers; borrowers and savers. The main point is that huge economic stimulus is hitting NZ at a time when the economy is already very stretched. The unemployment rate remains at near-record lows, and wage growth is high and set to accelerate. The loud sucking sound coming from the mines of Australia isn't helping. Surveyed capacity utilisation remains very high, and firms are reporting rising costs, and intentions to raise their prices. Oil and more general commodity prices are rising, along with transport costs. Rents are likely to take off as landlords demand compensation for higher interest rates and little capital gain. World food prices are going ballistic, with the dairy boom just the vanguard. A year ago, it was all about housing. Now, the inflation pressures are much more pervasive. Even with the housing boom on its wobbly last legs, the RBNZ hasn't yet gotten inflation beat.

The Reserve Bank will remain firmly on hold for now, given the remaining uncertainties about international credit markets, and questions around how far the housing market might fall. But by next year, with inflation sitting just outside the target band and looking buoyant, it will be clear that still-tighter monetary conditions are required. We anticipate two further hikes in the first half of 2008, though the timing depends on the behaviour of the NZD.

Too Many Strategies, But Still Frustrated?

It is not too far when the veteran traders got used to draw the trend lines using pencil and paper. Whereas the market data sent by mail to them and there was no computer and a trading desk. Were they really wrong by not using super analytical charting platforms? Were they all losers? I bet they were not only doing great but comparing to my fellow traders (Including me) they were absolutely sophisticated traders. I am not going to undermine anyone as we have legends and hundreds of good traders which actually make money around the globe on daily basis. My finger is merely pointing to those of traders who think that broken accounts is because they don't really have the best strategy to trade safe and secure and at the same time 1 million dollar is a fair enough one year outlook for an 10000 bucks trading account.

Where a trading strategy introduced as a reliable way of making money to traders, there will be some questions to ask, aiming to evaluate the accuracy of the given strategy:

Is it a trend or a range market based strategy?
If it works as a trend based strategy, what the strategy can offer to avoid range market and vice versa for the range market based strategy?
Is it a day trading strategy or planned to signal longer terms trading signals?
If it is an Intraday trading strategy how many hours and when exactly should I sit down and watch the screen?
If it is a long term strategy, what is the estimated possible drawdown in pips?
Is there any historical performance of trading using the given strategy in real accounts and if the answer is "YES" for how long? (don't rely on less than one year)
Are there any money & risk management rules attached especially tested on this particular strategy?
What is the average/highest/lowest risk to award ratio of the past last year trades?
Is there anyone who used the strategy on real account? (Be aware of marketing tactics and ask someone who is honest)
What is the outcome of above mentioned friend trades, is it positive, ok don't trust him not because he is a liar marketer but because no one can fit a common strategy with the same characteristics to everyone. In this case you need to test it by yourself.
Ask the developer about the psychological pressures may come to you while using that strategy on real accounts (We recommend to ask your mentor to analyze the strategy)
Does it have an Exit and Stop Loss rule for different market situations?
Ask the developer if you can get back to him couple of times asking questions about some points that you don't really understand. (don't make it 100 times a week cause he/she won't sell any strategy to you)
However, I know couple of guys who experienced real damages and disappointment where they tried to believe the strategy from the first day. So I am very serious, don't ever try to apply a new strategy on your real account unless you met an expert and he gave you the green light or you just passed one year of continuous testing.

Final Words:

You may ask for how long? One year... it's too much...I can't wait...!! Well then you can try it, but count it as a gamble...You know the gamble...Too many jack pots, nothing Hot Shots.

Let the science make you wealthy step by step, don't ever think you are smarter than any other trader because no one knows what is going to happen next. So it's better to be next to those wise traders who win because they are disciplined and have spent a long time of practice before doing anything real on their money. Try to admit it if you are not sure enough about your ability and try to solve the problems with patience and remember it does worth it if you make a million dollars three or even five years later instead of loosing what you got from hard work within just couple of days.

Also not to forget, forward any questions of yours right to my email s.a.ghafari@iftc.irThis email address is being protected from spam bots, you need Javascript enabled to view it and I will try to respond as soon as possible.

S.A Ghafari
IFTC Financial Studies
www.iftc.ir

Asia Market Update

Markets Decide RBA Rate Hike Is A Done Deal After Inflation Data

Aussie Q3 core inflation stronger than expected: (AU Q3 CPI QOQ: 0.7% V 0.9% expected, YOY: 1.9% V 2.1% expected; RBA TRIMMED MEAN QOQ: 0.9% V 0.8% expected, YOY: 2.9% V 2.8% expected; RBA WEIGHTED MEDIAN QOQ: 1.0% V 0.8% expected, YOY: 3.1% V 2.8% expected) Given the drop in oil prices and child care rebates, the softer Q3 headline inflation was widely expected, and investors instead focused on core inflation beating estimates. Markets have now decided that the RBA will have to tighten policy, with interest rate futures pricing in an 83% chance of a 25bps rate hike at the bank's November meeting vs. 60% priced in before the data was released. A survey conducted immediately after the data release showed that 11 out of 12 economists surveyed expect a November rate hike. The AUD/USD moved from 0.8990 before the data to 0.9028 at 23:18 ET, with investors keeping a close eye on the conviction of the AUD/USD rally above 0.90.

The NDRC, a top Chinese think tank, is circulating a report that calls for a 15%-20% one-off revaluation of the CNY. The Chinese government usually communicates its intentions to the markets through their think tanks, and a one-off revaluation is likely to have significant impact on proxy currencies like the JPY, KRW and HKD

Japan's Sept trade surplus hits record high: (JP SEPT MERCHANDISE TRADE BALANCE: ¥1.64T V ¥1.48T expected, ADJUSTED:¥1.03T V ¥900B expected) Analysts pointed out that the data is not as strong as it shows in the headline figure, as it is largely supported by a decline in imports. Sept exports to the United States fell -9.2% y/y, while exports to China increased +16.5% y/y.

Equities: At 23:08 ET the Nikkei is higher by +0.78% as Japanese shares track Wall Street gains. Australia's ASX is higher by +0.93% as traders resist the temptation to take profits on rebounding financials ahead of Merrill's earnings release (financials have led the charge over recent sessions). South Korea's Kospi is higher by more than +2.0% on gains in shipping companies. Chinese equities are higher by +1.39%, as investors continue to buy banks on earnings speculation.

Commodities: Crude oil traded lower in Asia ahead of tomorrow's weekly U.S. inventories data, losing -0.54% between 18:00 ET and 23:13 ET, last quoted at $84.81/bbl. A weaker USD helped gold, but lower oil prices capped the commodity's advance. As a result, spot gold is little changed and trading around $763/oz. Shanghai Copper is lower by more than -1.7% ahead of tomorrow's U.S. housing data.

FX Technical Commentary

Euro 1.4250
Initial support at 1.4125 (Oct 22 low) followed by 1.4094 (Oct 10 low). Initial resistance is now located at 1.4350 (Oct 22 trend high) followed by 1.4369 (1.0410 plus 1.3360 - 1.3719)

Yen 114.80
Initial support is located at 113.26 (Oct 22 low) followed by 112.61 (Sept 10 reaction low). Initial resistance is now at 115.72 (Oct 19 high) followed by 116.64 (Oct 18 high).

Pound 2.0495
Initial support at 2.0304 (Oct 23 low) followed by 2.0259 (Oct 22 low). Initial resistance is now at 2.0574 (Oct 22 high) followed by 2.0624 (Jul 26 high)

Australian Dollar 0.8980
Initial support a 0.8856 (Oct 23 low) followed by 0.8749 (Oct 22 low). Initial resistance is now at 0.8994 (Oct 19 high) followed by 0.9013 (Oct 16 high).

Gold 758.80
Initial support at 745.35 (Oct 22 low) followed by 741.40 (Oct 11 low). Initial resistance is now at 771.50 (Oct 19 trend high) followed by 774.90 (This weeks open + (last weeks range * 0.618)