Stopped Out of AUDUSD, Month-Ending Flows Disrupting Market Rhythm

Some very odd cross currents in the markets this morning with lower equities, and lower dollar, most likely attributable to month-ending flows. Usually these flows are one-time hedging kinds of business, and do not fit in the typical intermarket rhythm. We were stopped out of the last piece of AUDUSD to be flat into the close of the month. Back with you Monday

Cutting 1/2 Of Our AUDUSD SHORT - S&P, EURUSD Relatively Strong

our AUDUSD limits were filled in the overnight session on continued dollar selling driven by improved risk appetites. EURUSD finally tested the 1.3100 level as the S&P 500 gapped up on the 9:30 AM EST open, but traders all but closed the gap in the S&P from 1106 as EURUSD pulled back by 30 pips. AUDUSD is acting quite weak relative to these markets, but I have serious concerns that the strength in the S&P and EURUSD will be too much for our AUDUSD stop losses to handle. Also, the chart below shows an alternate wave count that allows for a final test of 0.9100. On twitter just now I moved our stop losses for the entire trade down to 0.9050, and then on the push down towards 0.9010, I closed 3 of our 5 unit short position at 0.9013 for a 25 pip loss from our average entry. I will let the other two work for now with stops at 0.9050, and look for places to put the other 3 back to work.

As I have said a few times, picking such a significant top after a multi-month rally is not a sharp-shooter's exercise. It's more like lobbing a few grenades, move in to see if they hit, retreat back, and then throw another one. We need to be nimble up here as we feel our way through the topping process. This is why trend trading can be much easier than trend fading. After this month I will be redesigning my SOTD position tracker and results to allow for more units traded. Plus, I do not believe I will be able to continue to post my SOTD track record. This might be ok because many a few readers sent in Elliott Wave analysis of my profit and loss record showing a completed 5 wave rally with a triangle break in wave 4. We all know what comes after a completed triangle and 5-wave rally, a 3-wave correction of at least 50%.

Benign CPI Leaves RBA On Hold - Oil Inventories Build - Commdty CCY'S Selling Off - SHORTING AUDUSD

Some benign CPI inflation data from the RBA has the markets chattering that the RBA is on hold until at least November. Also, we saw below consensus Durable Goods orders in the US that has the currency markets trading with a “risk- off” tone. The Aussie group is very weak across the majors, the Yen is very weak against the majors, but Euro and Sterling groups seem to be hold their bids. Oil inventory data showed a huge build sending the Canadian dollar sharply lower against the Yen and the dollar. I think weakness in commodity currencies such as Aussie and Canada spells trouble for the rallying equity and interest rate markets. We cut or EURUSD short yesterday for essentially a scratch as I felt our timing was just a bit early. I think today's Aussie weakness presents an opportunity to take another shot at a long dollar position.

Below is a 60 min AUDUSD chart showing a nice impulsive decline off the 0.9057 high. This impulsive decline is either wave i or wave a, but according to Elliott Wave, we don't need to know the count yet. The reason being is in either wave count a 3-wave rally in wave b or wave ii should unfold setting up another 5 wave decline in wave c or wave iii carrying us below the 0.8895 lows. This is the great thing about Elliott Wave; it provides a framework in which we believe the market should operate within. I will be looking to sell the b or ii wave back up towards 0.9000. Please see the SOTD position tracker below.

To corroborate our AUDUSD trade, the daily chart in high grade copper shows a nice potential reversal zone of $320-$331 in wave .II/.b.

Further, EURUSD shows an ending diagonal in formation, with a terminal push in wave v projected to end somewhere between 1.3050 and 1.3100. It is my plan that EURUSD rallies into a new high satisfying the requirements of the ending diagonal while AUDUSD rallies to a LOWER-HIGH filling our offers creating a nice sell divergence.

CLOSING EURUSD AT BREAKEVEN TO GO FLAT - FEELING EARLY ON THIS TRADE

CLOSING EURUSD AT BREAKEVEN TO GO FLAT - FEELING EARLY ON THIS TRADE

Selling EUR/CHF Ahead of EU Stress Test Results

On Friday July 23, the EU will reveal the results of the bank stress tests for 91 major European banks comprising about 65% of total assets. Several large banks are expected to fail and require potentially significant recapitalizations. If so, the EUR is likely to come under pressure as additional sovereign liabilities are seen to undermine deficit reduction plans. If none or few banks fail, the market is most likely to conclude that the tests were not stringent enough and significant doubts over the strength of the sector may resurface, also adding pressure to the Euro. The risk to this outlook is that a sufficient number of banks fail, but are seen to be able to recapitalize using existing government bailout funds, and markets breathe a sigh of relief and the Euro recovers further.

On the technical side, today's price action has generated a 'bearish engulfing line,' suggesting a reversal lower after an advance. The highs for the rebound look to have been contained by the 1.3665 38.2% retracement level of the decline from the May 21 high. A bear flag consolidation channel is evident, most clearly seen on the 4-hour timeframe, potentially highlighting downside prospects. Lastly, daily stochastic readings look to be topping out in overbought territory.

The strategy will look to sell half of a short EUR/CHF position at current market levels of 1.3550, and to sell the second half on remaining strength to 1.3640, just below recent highs, for a short average rate of 1.3595. The stop loss will be at 1.3740, just above a key low on June 9. The take profit objective will be for 50% at 1.3200, just above daily low close for the most recent decline. The second half will be kept open for an eventual move below 1.3000. A more conservative strategy would be to wait for a break of the bear flag bottom at 1.3460/70 (and rising) to confirm the downtrend has resumed, before going short.

Closing AUD/USD For A Minor Profit Ahead Of Possible Sharp Reversal From Ending Diagonal

I just closed out the AUDUSD trade for a minor profit at 0.8978 following a very impressive new home sales number from June. New home sales increased 24 percent from May to a yearly pace of 330,000, up from the May bomb of a 267,000 annual pace, and ahead of analyst's expectations of 310,000. S&P's exploded through the 1105 level, last trade of 1109.58, while the USDX was mostly range-bound as a result of the weak yen, strong euro reaction. Our AUDUSD long continued to grind higher, but the overwhelming resemblance of an ending diagonal caused me to close out the long position. It's very possible the market will push above 0.9000 to have a look at any buy stops there, but the downside risk that exists from the implications of an ending diagonal are much too great to ignore. Flat here and am looking for additional evidence that this is in fact an ending diagonal. Will consider short positions with further confirmation

Weekly Overview

Stress test results are in--Yawn

The long-awaited results of the Eurozone banking sector stress tests were delivered on Friday and markets greeted them with a collective yawn. Earlier leaks led markets to conclude the adverse scenarios would not be especially stringent, causing most to discount the results. To re-cap, only 7 of the 91 banks tested failed, requiring a total of only EUR 3.5 bio to be raised in new capital. To put that number in perspective, some analysts reckon Spanish banks alone need to raise EUR 40 bio to be adequately capitalized. The stress tests also excluded the potential for a sovereign debt default and focused only on securities held in banks' short-term trading books, and not the 90% of banks' government bond holdings that are classified 'hold to maturity.' But the basis of the European debt crisis was exactly that--banks holding large amounts of Euro-area government debt were vulnerable in the event of a sovereign default. The lack of credibility of the stress tests raises the risk that market concerns over Euro-area financial sector stability will resurface, leading to another round of speculation that the EUR is a doomed currency.

The one potential bright spot to emerge from the stress tests are disclosures of individual bank's holdings of government debt of Greece, Spain and Portugal, but those numbers were not available on Friday. They are expected to be divulged over the next two weeks. Revealing which institutions hold what amounts of troubled government debt will allow banks to more accurately determine which of their counterparties are most risky, and potentially improve credit market functioning and overall stability. Another possibility is that revealing government debt will lead to a two-tiered lending environment, with those holding significant exposures being forced to pay up or rely further on the ECB. We will be watching closely to see how European inter-bank lending rates move to start next week as the decisive measure of the market's acceptance of the stress test results. Going into the stress test results on Friday, with all that was known about the tests beforehand, 3-month Euribor rates were at the highest levels for the year, suggesting that credit markets remain on edge.

Against this backdrop, risk assets performed reasonably well in the past week, with stocks rebounding and making new gains, JPY-crosses at their highs (but still below recent highs), and the USD nearer to its lows against most others. Continued positive corporate earnings reports appear to be holding sway, but the overall environment remains extremely fragile and of low conviction. At the close of the week, risk looks like it may test higher next week, just as it looked set to extend losses at the end of last week. The passing of the stress test 'event risk' may propel risk higher in the near-term, but with more questions raised than answered, we think gains in risky assets are likely to prove unsustainable. As well, recent positive data surprises obscure the risks from a pending US slowdown into year-end, which is likely to echo around to other major economies. In this environment, we would suggest maintaining an extremely short-term trading bias and remaining alert for sharp intra-day reversals.

Sterling bolstered as some of the economic gloom lifts

There is a broad consensus that the second half of this year will be difficult for the UK economy as it struggles in the face of budget reform. The news that Q2 GDP was far stronger than expected (+1.1% q/q) doesn’t change this impression but it significantly reduces the chance that the UK economy will fall back into double dip recession on the back of austerity measures. The additional growth should soften the government’s budget projections and should help heal the deficit a little faster than previously expected. Since UK growth in Q2 was quicker than expected it follows that inflation potential may also be a little firmer. Recent economic data does not support this view with headline CPI slipping back and average earnings moderating. That said there is sufficient fodder in price data for the UK inflation hawks to remain on edge. The impact of the GDP report was thus to send sterling sharply higher. EUR/GBP pushed below the 0.8390 technical support following the data release. A fall below 0.8310/20 could suggest another leg lower. Cable has broken above the USD1.5330 level which has strengthened the technical outlook. A break above USD1.5450 may see towards 1.5525.

German recovery becoming difficult to ignore

The German July IFO survey surged to 106.2 in July, outpacing both the market consensus and the June data by a generous margin. The release comes on the heels of stronger than expected German PMI data and provides more evidence that Germany’s economic recovery continues to gather pace despite the loss of momentum in the US economy. Both the current and expectations components of the IFO surprised on the upside. Recent German surveys have shown some hesitancy in the expectations components, so the IFO’s result suggests that the impact of the sovereign debt fears may have peaked. The current disparity between US and German economic data provides an interesting backdrop for the continued move higher in Euribor; though the ECB have attributed this to market forces. While there is little risk that the ECB will hike the refi rate at least before the middle of next year, the firmer Euribor is likely to offer EUR/USD decent near-term support. Medium-term the EUR remains susceptible to difficulties that some European banks may have in recapitalising themselves. Near-term, the USD1.2700 support continues to hold solid and risk is for another run at the USD1.3000 level.

JPY-strength becoming an issue in Tokyo

Japanese officials have stepped up their verbal rhetoric against continuing JPY strength, with comments coming from senior leaders at the BOJ and the MOF. Most highlighted the risk of a stronger yen being a significant danger to future growth in the Japanese economy. This week’s Q2 earnings reports, as well as the highly awaited announcement of the European stress tests were major sources of pessimism over the past few weeks. The fact that both came and went without much fanfare has calmed the markets and reassured investor sentiment. Thus, the Yen has weakened against every major currency in the G10 this week; of note: USD/JPY (86.50 to 87.40), EUR/JPY (111.60 to 112.90) and AUD/JPY (75.25 to 78.30) rose over 4% this week alone.

The BOJ will continue to monitor market activity closely as increased global risk aversion is still on the forefront and could lead to fresh JPY-strength. There have been rumors of semi-official interest to buy USD/JPY down around 86.20/30 in the short term and we’re likely to see further verbal intervention if it reaches 85.00. However, it is rather unlikely the BOJ will take further measures on additional strength unless it rapidly appreciates towards the 80.00 level, then the odds of actual intervention would become highly probable.

Key data and events to watch next week

The calendar in the US is moderately busy in the week ahead. Housing numbers kick off the week with June New Home Sales on Monday and the May S&P/CaseSchiller Home Price Index to follow on Tuesday. Also on tap for Tuesday are the Richmond Fed Manufacturing Index and the Consumer Board’s Confidence Index for July. The data slate for Wednesday sees Durable Goods Orders for June followed by the Fed’s Beige Book in the NY afternoon. Weekly Jobless Claims are scheduled for its regular release on Thursday. Friday’s data sees Q2 GDP, Q2 Personal Consumption, Q2 GDP Price Index, and Q2 Employment Cost Index. Data for the week wraps up with Chicago PMI and University of Michigan Survey of Consumer Confidence Sentiment for July.

In the Eurozone, Wednesday sees the release of the Business Climate Indicator, Consumer Confidence, and Industrial Confidence numbers for July. Friday closes out the week with June Euro-zone Unemployment Rate and July CPI Estimate. In Germany, Tuesday sees the August GfK Consumer Confidence Survey and June Import Price Index. The data session comes to a close on Thursday with July Consumer Price Index and July CPI – EU Harmonized. In addition to the upcoming data releases, there will be top tier Q2 and first half earnings releases, kicking off with Deutsche Bank on Tuesday.

A light week of data in the UK starts with July Nationwide House prices, June Net Consumer Credit, and June Mortgage Approvals on Tuesday. There is no significant data due out until Friday, however the BOE’s King, Bean, Fisher, and Sentance will be testifying on the May Inflation Report at Parliament’s Treasury Committee on Thursday. Friday closes out the week with the July GfK Consumer Confidence Survey.

Data out of Tokyo is moderate, starting with June Retail Trade and Large Retailers’ Sales on Wednesday. Thursday sees June Unemployment Rate, July Tokyo CPI, June National CPI, and June Industrial Production. Friday wraps up the week with June Housing Starts.

Canada begins a light week of data with Industrial Product Prices and Raw Materials Price Index for June on Thursday. The data session comes to a close with May Gross Domestic Product MoM on Friday.

A light calendar down under begins with Q2 PPI and CPI due out on Sunday and Tuesday. The week wraps up with June Private Sector Credit on Thursday. New Zealand begins the week with July NBNZ Business Confidence on Tuesday. Wednesday will have the RBNZ rate decision with expectations for a 25 basis point hike to 3%. Data continues on Wednesday with June Trade Balance and wraps up on Friday with June Building Permits.

RE-SELLING EURUSD AS Equities, Yields Plunge

Re-selling EURUSD as markets plunge following Bernanke's reassurance of a “moderate recovery”. 10 yr yield a stone's throw away from 15 month, 2.883% low. Not looking good out there.

Closed EURUSD +90 Pips. A Look At Manaing Risk Like One Of The "Greats"

I cut our EURUSD short position this morning on Twitter at 1.2820 for gain of 90 pips because frankly, I have very little understanding of what's going on this market. In that situation, it is usually not a good idea to look a gift horse in the mouth.

Investor sentiment is really quite poor as judged by the extremely weak US 10 yr yield fresh off a test of the 2.88% early July lows. The bounce from those lows to the current trading level of 2.934% has been quite anemic indicative of corrective price action. A 3rd test of this level in coming sessions looks possible. Moreover, the equity rally born in the back half of yesterday's New York session looks to have run of gas at key Fib resistance levels of 1085 in the S&P 500, 10,260 in the DJIA, and even the recent outperformer NAZ 100 is failing at 1847.

For over two years, the dollar has traded inversely to the S&P 500, which makes for a direct correlation of EURUSD and the S&P. A major source of my hesitation in this summer market is a second test of this inverse relation between USD and the S&P. The first test came in Feb, March, and April of 2010 when the S&P and EURUSD diverged from the recent correlation. This divergence was quickly unwound when the S&P got slaughtered from the 1213 high catching up to the falling EURUSD. The two traded in unison down to the June 2010 lows of S&P 1047 and EURUSD 1.1877 when an interesting price development occurred. The S&P made a lower-low on July 2nd, where as EURUSD made a higher-low days before on June 29th. This 2nd divergence is still in progress as EURUSD has been pushing higher while the S&P has continues to probe lower. Other currencies like AUD and CAD are also acting strong indicating that this weak equity performance is not warranted. But circling back to the first market I mentioned, US bond yields, suggest that this fear and equity weakness is justified.

I attribute this confusing intermarket picture to just plain under-participated summer trading. Volumes are notoriously low, which allow markets to diverge from their normal course. It's a case of when the cat is away, the mice will play. Once the cat (read volume) returns, the mice will quickly get back in line.

While the market meanders around I want to take a quick look back at the SOTD track record, since I began tracking it in November 2009. In total, I have written about 129 trades in SOTD, 70 of which were wins, 49 were losers, and 10 were breakeven. This makes for a 54% win rate. When you think of an “expert” in a given field, do you think being right only slightly more times than being wrong qualifies somebody as an expert? If you said “no” in a sense I would agree with you. But what I think does qualify the track record is the average size of the winners and losers. The average size of the winner is exactly double that of the average loser. Also, my largest losing month is a little more than half the size of my smallest winning month. Further, I can say that over the past 129 trades I did not have a single losing trade that “got away from me”. How many of you reading this had that one large loser that undid the great progress you made on the prior 4 or 5 trades? How many of you moved, or better yet never placed, a stop loss allowing for a losing trade much larger than you originally intended? If you said YES to any of these, you are still lacking the knowledge and confidence in your methodology to stick to your intended stop loss levels. The winners will always take care of themselves. It is the risk management part of this service that will help you succeed as a trader. But it's no fun concentrating on your losers, is it? Again, if you want to succeed as a trader it is the endless pursuit of minimizing the average size of the inevitable stop losses that will make the difference in your bottom line in the end. That question of whether a 54% win rate qualifies someone as an expert was actually a bit of a trick question. The greatest living US hedge fund manager, Paul Tudor Jones, is on record saying that some of the best traders in the world will not be right more than 50% on all trades made in their careers. The difference is all in the average winning size versus average losing size. At the bottom of this report I have updated several seminar dates and locations around the globe to come out and learn our 3 dimensional approach to trading. I encourage you to come out and learn. It is the best way to shorten the learning curve of this business.

Selling EURUSD into Wave 2, Nervously Watching S&P 1060 and US10 Yr 2.88%

GBPUSD traded to an overnight high of 1.5308 missing my 1.5340 focus sell zone before catering over 150 pips to a 1.5150 low. Since then the retracement has been unusually strong tagging the .786 retracement of the 150+ pip move down. The Euro is also retracing the overnight losses, but nowhere near the degree that Sterling has, only testing the 50% retracement of the overnight losses. The Euro group is relatively weak this session so it is here where we will focus our attention. But first let's take a step back and look at 2 possible wave counts on the 180 min charts in EURUSD.

The first count labels the move into 1.3000 as the completion of a 4th wave flat correction that begin back in mid-May. If this is correct, wave 5 should bring us back towards the 1.1800 lows in coming weeks.

The second wave count labels the entire 5 wave completion at the early June lows, and we are rallying in a-of-II, with wave b and wave c yet to come. This count puts us into the b-wave, which should retrace at least 50% of the a-wave targeting a minimum test of 1.2450 in coming sessions.

In either wave count, the next 3-5% in EURUSD should be lower, so we are in fact Elliott-hedged.

The 15 min chart is our execution chart and shows our sell levels. I sold 1 unit of EURUSD on Twitter this morning at 1.2910. The stop on that unit is 1.3005 with a 1.2700 take profit. I have offers to sell another unit at 1.2950 with a different stop of 1.3032 and take profit of 1.2752. Keep an eye on the US 10 yr yield flirting with deadly and vulnerable support of 2.88%. The S&P is acting strong around 1060-area, so would like to see this level broken today to spike risk aversion and resulting USD buying pressure. If the S&P feels like it wants to hold this 1060 level, I will likely cut this EURUSD short. Please stay tuned to Twitter for further instructions.

some analysis...

European stock markets failed to cling onto their opening gain as risk appetite took a turn for the worse. In line with this trend, the CAD has given back ground vs the USD this morning despite expectations that the BoC could hike rates again today. Also, AUD/USD is also off its overnight high. Pre-empting the softer tone in stocks has been the failure of EUR/USD to hold above the 1.300 level. From an intraday high shortly after the London open at 1.3024, the EUR has backtracked to just a whisper above 1.2900.

The results of the Greek, Spain and Irish debt sales have on the face of it been encouraging. Increased demand for Spanish bills drove down the average yield at its auction. The treasury sold its maximum EUR 6 bln allocation at a bid cover of 1.95 and an average yield of 2.221%. 18 mth bills were sold at a bid/cover of 2.44 and an average yield of 2.331%. Ireland managed a bid/cover ratio of 3.6% at its 2020 and Greece sold 13 wk bills with a bid/cover of 3.85 at its auction at a uniform yield at 4.05%. These governments are paying a lot to secure finance in the open market but the fact that there is demand does diminish the risk of sovereign default in the Euro area at least in the immediate future. That said, the high costs of securing funding will place additional pressure on budgets and heighten the need to make painful and potentially unpalatable austerity measures. It will be some months yet before countries such as Greece and Spain can hope to shake off the mantle of the walking wounding and in the interim concerns about the coherence of the Eurozone could surge again. As news of the first casualty of the EU bank stress tests was reported this morning, the market appears to be questioning whether tensions in the Eurozone have eased sufficiently to justify gains for the EUR above the EUR/USD 1.300 level. Much of EUR/USD’s recent recovery has been drawn from the market’s reappraisal about the outlook for US growth and interest rates. The market no longer expects the Fed to hike interest rates much before the ECB and this has been reflected in the cheaper price of the USD. That said, fears of a double-dip recession in the US have most likely being overstated and this suggests that the USD’s downward adjustment may now be largely complete.

Hungary failed to reach its target at its bill auction this morning following yesterday’s failure of the government to reach approval from the IMF and the EU for its budget. The HUF did find support this morning though this was on the back of speculation regarding possible central bank intervention.

Intervention talk has also contributed to a softer JPY this morning. Although yen strength will not be desirable by the Japanese authorities, stand-alone intervention is not a policy that the MOF would adopt lightly.

Sterling sold off this morning on the back of worse than expected PSNCR data. While disappointing the net borrowing data do show an improvement in the trend. June borrowing registered GBP 14.5 bln compared with an upwardly revised GBP 17.1 bln in May with increased tax receipts helping to improve the outlook. The tough budget pledges of the new governments are a prime focus for the market, though the impact of the squeeze will not register until later in the year. This week’s Q2 GDP data is likely to indicate a decent pre-budget performance for the UK economy and may win back some support for the pound. Tomorrow’s BoE minutes are also a focus.

The BoC is widely, though not universally, expected to hike interest rates today. The impact of any move should be largely priced-in and may be subdued if the accompanying statement from the BoC downplays the need for follow on moves.

US housing starts and building permits data are due today, along with the BoC decision.

Short Sterling - TRAILING STOPS LOWER TO 1.5270 +58 PIPS - 3rd of a 3rd Coming??

Based on yesterday's GBPUSD analysis I went short 1 unit at 1.5328 on Twitter this morning. I have offers to sell another unit at 1.5360 and have stops for both units at 1.5450. Take profits are significantly lower. Keep in mind this is a weekend trade, so you must accept the possibility of a weekend gap, which I do- do you?.

I mused on Twitter this morning that Cad weakness and Yen strength separately act as leading indicators foretelling coming equity market weakness. This morning we saw both occur simultaneously, which I believe to be lethal for stock prices. The lowest Consumer Confidence in a year seemed to be the straw that broke the camel's back following upbeat earnings from Intel, Alcoa, and good news from Goldman and BP. But GE and Citibank missed the mark fueling the latest bout of risk aversion.

SOTD from Tuesday warned of 3 major markets facing significant test of key technical levels. USDX broke below the 83.50 support, but has found much better support from Wave Principle and Fib support at 82.50. The 10 yr bond yield failed miserably at my 3.11% (currently trading 2.92%), as did the S&P fail at 1100 (currently trading 1074). Also, take a look at gold this morning - just crushed. I am very glad I did not take the AUDUSD long because a big piece of my 3-dimensional approach to trading was missing, and that was the Intermarket Analysis part. The other markets that strongly cautioned against a long AUDUSD trade have broken out towards risk aversion. The path of least resistance seems to be lower equities, interest rates, and commodities, and a higher dollar for now.

Weekly Overview

Risk rally stalls, more downside likely

Risk assets (stocks, commodities, JPY-crosses) started out the past week on solid gains, but ultimately failed to overcome key resistance levels. In stocks, the fact that 20 out of 23 US earnings reports beat expectations and shares could not advance should be alarming. In reality, though, it should also have been expected--as the outlook for the US recovery continued to slide, the future outlook for stocks was undermined (and earnings are mostly backward looking indicators anyway). The market is still in the process of adjusting to a more sluggish 2H 2010, with US assets bearing the brunt at the moment, but we also think there is more to go in re-pricing for a slower global recovery.

In terms of price levels, the S&P 500 failed below the key 1100 psychological level and the bottom of the Daily Ichimoku Cloud around 1095, keeping the downside focus intact. A bearish engulfing line on the daily S&P candlesticks also highlights downside risk ahead. WTI crude oil prices never even managed to test the recent highs just below the $80/bbl area, and finished down on the week. EUR/USD topped out at the 61.8% retracement of the April-June decline, which came in at the psychologically significant 1.3000 level. The USD index extended losses below the daily cloud, but may have found a base above the key 82.00 level, just above the weekly cloud top at 81.90. AUD/JPY, the closest correlated FX pair to stocks, was rejected from the daily cloud up in the 77.30/78.30 area, mirroring the same S&P failure. Lastly, the commodity currencies have shown renewed signs of weakness against the USD, and they are frequently a leading indicator for broader USD-based moves, suggesting USD weakness may be set to reverse.

Over the course of the past week, several key correlations broke down in the short run, but other more meaningful correlations persisted. The major anomalies were in outsized EUR gains, followed closely by GBP, and extreme USD weakness. We look at EUR and GBP strength as mainly the result of another wave of short-covering, similar to what occurred in the middle of May. In this respect, we would note the outsized gains in EUR/AUD, EUR/CAD, GBP/AUD, and GBP/CAD. If it were a case of pure USD weakness, those crosses would not have seen such gains, reinforcing our view that this was a position-driven adjustment. Anecdotally, the break above the 1.2750/2800 area was heavily stop loss driven. Also, according to recent correlations, a weaker USD should have boosted stocks, oil and gold, but clearly that didn't happen either.

Taking a step back and looking at the bigger picture, US weakness undermines the prospects for the global recovery overall. From that view, many of the market moves in the past week make more sense: oil and stocks lower on slowing global outlooks; JPY-crosses lower on heightened risk aversion over the deteriorating outlook; and JPY and CHF strength on safe haven flows. We think the bulk of EUR and GBP short-covering has likely occurred and we are leery of chasing those currencies higher. Anticipating that increased risk aversion may eventually lead to the USD rebounding on safe haven demand, we would prefer to be sellers on remaining strength in EUR/USD between 1.3000-1.3150 and in GBP/USD between 1.5400/5530. The likely more reliable way to trade expected further risk pullbacks would be to sell JPY-crosses, especially AUD/JPY, CAD/JPY and NZD/JPY on remaining strength.

EU bank stress test results are keenly awaited

The first results of the EU bank stress tests are due on July 23. Credit analysts have been busy drawing up lists of which banks are likely to have failed; if the tests are to be perceived as credible then failures are considered to be inevitable. In contrast, the tone of many European officials has been confident. The Deputy Spanish Finance Minister Campa has said that Spain “can only win” from the publication of the tests, Bank of Italy Governor Draghi has stated that the stress tests will demonstrate that the capitalization of Italian banks is well above minimum levels and Bank of Ireland Governor Honohan has stated that Irish banks have already been through more severe tests. The IMF’s Strauss-Kahn has concluded that there will be some small institutions that will have to be refinanced. The official rhetoric along with a decent result to the Spanish bond auction and Greek bill sale this week has supported the EUR. Clearly the EUR may come under pressure if the stress tests bring many casualties. It could also be sold if the stress tests produce too few failures, as the tests will be seen as providing insufficient transparency to the interbank market. There could be a thin line where the results appear to be relatively agreeable and the EUR can derive support. However, having reached EUR/USD 1.300 already, upside potential for the EUR could be running dry.

UK Inflation debate may be fuelled

The debate on whether inflation pressures are building in the UK intensified a month ago when it was revealed that MPC member Sentance had voted for a rate hike at the June policy meeting. Since then Sentance has maintained his hawkish view although the CPI release has shown a fall in the headline rate and labour data has brought a moderation in the growth rate of earnings. The publication of the FOMC minutes this week re-opened the possibility that the Fed may ease policy again before it hikes. While this prospect cannot yet be dismissed in the UK, market expectations are favoring a policy tightening in the UK ahead of the US and this possibility has allowed for a better tone in cable in recent sessions. Sterling could find additional support on the back of the Q2 advance GDP report in the week ahead, which is expected to show relatively good growth. The impact, however, is likely to be short-lived given prevailing concerns that the UK growth rate will stutter in H2 on the back of the government’s austerity measures. The old range high of cable at USD.15525 is likely to offer decent resistance, a break below the USD1.5230 level may suggest additional losses are in store.

Bank of Canada Rate hike expected

On Tuesday July 20, the Bank of Canada meets to decide on interest rates. We agree with the market consensus for a second consecutive rate hike of 25bps to 0.75% as recent economic data out of Canada supports policy tightening. A look at the jobs report underscores this as 93.2k jobs were added in June, more than 4 times analysts’ expectations. To put this in perspective, a proportionate number in the U.S. (whose economy is about 10 times larger) would be the creation of roughly 930,000 jobs. That is an impressive number and keep in mind that higher employment propels the economy forward. There has been some discussion that the BOC may tighten more aggressively, however we do not agree with this view. As inflation remains subdued there is no apparent need for more aggressive tightening. Year over year CPI is currently 1.4% which is below the 2% target inflation rate and the bank recently projected core inflation at or below 2% through 2012. In their forward looking guidance, policy makers are likely to take a cautious tone given the concerns over the Euro zone and slow down in global growth highlighted by a softening demand in commodities. More detailed thinking can be expected in Thursday’s Monetary Policy Report.

Key data and events to watch next week

The calendar in the US is modestly light in the week ahead. Housing numbers kick off the week with the July NAHB Housing Market Index and continues into Tuesday with June Housing Starts and Building Permits. The data slate for Thursday sees weekly Jobless Claims, June Existing Home Sales, and June Leading Indicators. Fed Chairman Bernanke will deliver the semi-annual monetary policy out look to the Senate Banking Committee on Wednesday.

Eurozone data is relatively light but significant with a heavy emphasis on the aggregate EZ results of the bank stress tests on Friday. May Euro-Zone Current Account data is scheduled for Monday as is May Construction Output. No further data is scheduled until Thursday when PMI Composite, Services, and Manufacturing Output Indexes are to be released. Thursday wraps up eurozone data releases for the week with May Industrial New Orders and Euro-Zone Consumer Confidence. In Germany, Tuesday sees June Producer Prices with July PMI Manufacturing and PMI Services surveys to follow on Thursday. Friday closes out the data week with the July IFO Business Climate Index.

A moderate week of data lies ahead in the UK with June Public Sector Net Borrowing, June Mortgage Approvals, and the July CBI Optimism Index on Tuesday. Wednesday will have the Bank of England Minutes followed by June Retail Sales figures on Thursday. Friday wraps up the UK data session with the advance estimate for Q2 GDP.

Data out of Tokyo is light with May Leading and Coincident Indexes to be released on Tuesday. There is significant event risk though as BOJ intervention cannot be completely dismissed with USDJPY trading at current levels.

Canada begins a significant week of data with the Bank of Canada Rate announcement on Tuesday. Expectations are for an increase of +0.25% to 0.75%. Up next are May Wholesale Sales and May Retail Sales due out on Wednesday and Thursday. Friday wraps up the week with June CPI and Bank of Canada Core CPI set to be released.

The calendar down under begins with the release of the RBA minutes from the July meeting on Monday and continues with the Q2 NAB Business Confidence survey on Wednesday. Thursday wraps up the week with Q2 Import and Export Price Indexes.

Summer Doldrums Causing Disconnect - Sterlng Selling Levels On Daily/Weekly

Just casually watching this market as we seem to have firmly entered the doldrums of summer trading. There are markets that require you to trade often and aggressively, and then there are markets that are under-participated with low volume and low correlations, which require high levels of discretion. I believe today is an example of the latter. For example, look at the divergence between the Euro, Sterling and Swiss and Yen(some of the strongest currencies on the board) compared to the weaker markets today such as the Cad, US equities, US bond yields, crude oil, and a strong VIX. The markets seem to be out of rhythm today, which makes pulling a consistent risk ON/OFF theme tough to accomplish.

AUDUSD looks strong for a move towards 0.9000 to 0.9100 in wave .C-of-2/B, while the area of the prior wave iv at 0.8670 holds as support.
I even considered taking a shot at a long on a pullback towards 0.8750 with stops under 0.8670. But with non-confirmations of a risk-ON theme from the related markets mentioned above, I cannot take it. Take a look at Gold from yesterday's SOTD. If I were trading I would consider selling it into 1225, so it's hard to be bearish gold and bullish the Australian dollar at the same time. By the way, I view the current Gold count as a triangle in wave b-of-Y, with a terminal push to c-of-Y into that 1225 area. I am leaving it alone for now.

On more of a macro level, I am seeing some consistent theme of coming Sterling resistance on the daily and weekly charts against both Euro and USD. If we can get the divergences of the related markets to unwind and come to agree on a risk-OFF theme, selling sterling looks like an attractive long-term play.

EURGPB looks to have completed a double zigzag into the 0.8200 support zone and is poised to push higher. There are a series of highly visible lows around the 0.8400 level, which are sure to attract stop loss buying interest around that level. A push higher should trigger those buy stops accelerating the upside advance. Watching here for now.

Sterling is also facing resistance against the USD at the area of the prior fourth wave at around 1.5400-1.5550. I will be looking for opportunities to sell Sterling once those related markets begin to re-align. Patiently sitting on my hands here.

Selling EUR/USD on European Growth, Bank Concerns

EUR/USD

Support

1.2500 55-day moving average

1.2410 Daily Ichimoku Tenkan line

1.2330 21-day moving average

Resistance

1.2675 May 21 intraday high

1.2750 Daily trend line resistance from Dec. 2009 1.51/52 highs

1.2900 Daily Ichimoku cloud top (declines to 1.2785 by July 12)

Comments
EUR/USD has seen a corrective rebound which looks to have formed a potential 'bear flag' channel, a counter-trend consolidation pattern. The pair is also within about 100 points of a key daily down trend line that has defined EUR/USD's decline since the end of 2009. There also is the possibility that EUR/USD is forming an inverse head and shoulders pattern, possibly representing the end of the down-trend. Given the choice between the two, I'm inclined to favor the bearish scenario of the EUR eventually turning lower given the still bleak fundamental outlook for the Euro-zone. The key resistance levels above also make for a relatively limited risk set-up.

The Strategy this week will be to sell half of a short EUR/USD position at current market levels (1.2640/45) and to sell the second half at 1.2730, just below the key daily trend line, for a short average of approximately 1.2685. The stop loss will be on a daily close above the down trend line at 1.2750 (and declining) or if 1.2800 trades at any time, for a total risk of about 115 points. The take profit objective will be for 50% at the 1.2330/40 21-day mov. avg. (which is rising), and the remaining half will be kept open for a potential break below the bear flag base at 1.2250 (and rising). Stops can be adjusted lower to 1.2550 on a drop below the 1.2490/2500 level.

NY SESSION

Major currencies mostly consolidated in ranges today after strong gains in prior sessions. The macroeconomic picture gave the markets a dose of reality and earnings-driven euphoria halted as U.S. equities ended the day relatively flat. It was lucky number 7 for the Dow Jones as it closed marginally higher, up only 0.04%, however the S&P 500 snapped a 6-day win streak closing 0.02% lower. Intel’s record earnings release was not enough to extend stock gains in the face of weak economic data.

U.S. headline retail sales came in softer that analysts forecast (-0.3%), with a 0.5% decline after a 1.1% decline in May. Retail sales ex-autos (-0.1%) were in line with expectations after a May decline of 1.2%. The headline number resulted in a negative open for equities, dollar weakness, and saw the yen crosses drift lower as risk retreated. Stocks managed to edge up into positive territory briefly and the euro reached new 2-month highs in the 1.2770/80 area as Greek Finance Minister George Papaconstantinou told parliament that the government had met targets set by the EU and IMF that would secure a second installment of aid.

Later in the day, Fed officials alerted the markets of that risk had shifted to the downside with the release of their FOMC meeting minutes causing equities to make new lows for the session and further weakening yen crosses. Minor changes were made to economic outlooks as the Fed forecasted slower growth, higher unemployment, and decreased inflation. The revisions underscored a slightly weaker economy moving forward. With regards to policy, the Fed noted that they do not see the need for additional policy stimulus.

Gold was choppy but down roughly 0.3% in line with other commodities. Oil prices shrugged off lower inventories but lost ground due to the weaker Fed outlook. The U.S. Treasury Department auctioned $13 billion worth of 30 year bonds at a yield of 4.08%, lower than the anticipated yield of 4.108%. Treasuries rose and yields dropped affirming the reduction in risk appetite and flight to safety.

Consumer Inflation Expectations and New Motor Vehicle Sales for June will be released out of Australia. There is significant Chinese data due tonight that could set the tone for markets. The reports we are looking for are second quarter Real GDP, Retail Sales and Industrial Production for the month of June, as well as June CPI and PPI. The Bank of Japan will meet tonight to set its target rate, though no change is expected

Major Markets Still Consolidating - Shifting Focus To Gold Market For Now...

I am not sure if it's a bit of vacation hangover, if the summer sluggishness is beginning to set in, or perhaps I am just not interested in chasing these latter stages of the USD selloff without confirmation from the other 2 major markets? This move through the 83.50 USDX level highlighted in yesterday's SOTD certainly qualifies as a break of technical resistance, but the effort required to do so has put the USD into a very oversold condition that allows only the most nimble of traders to be long XXX/USD. Plus, the S&P and US 10 yr yield are still contained below their respective risk-ON levels of 1100 and 3.11%.

So for the first time, I am going to include some gold analysis in SOTD to get away from the USD. Unfortunately It's not a product we are allowed to trade in G.C.A.M, so I am personally not taking this trade or counting it in my SOTD Position Tracker, but it's still a nice setup.

The 1263 high in gold registered as the orthodox top, or a truncated .5th wave, within a larger degree ending diagonal in blue 5. The resulting sharp selloff is very characteristic of ending diagonals. We are looking for the end of this corrective rally to complete around $1225 and then embark on the next push lower.

A move down to the 90 min chart shows a possible double zig zag with target resistance into 1225 for wave 2/B. Unfortunately, as I am writing this gold promptly traded from $1218 to $1206 in a matter of a few minutes. It's probably just a wave “b-of-Y”, with “c-of-Y” still to come, so I would not chase this weakness, yet. Not sure if we'll have an opportunity to take a crack at this level, but $1225 should hold as resistance and appropriate stops on this could be located around $1252. That's all for now. Will be keeping a close eye on the tape with sole goal of capital preservation as summer trading takes hold.

July 14th FOMC Decision

On Wednesday, July 14 at 1400EDT/1800GMT, the minutes of the most recent Fed meeting will be released, offering potential new insights into the Fed's thinking. While the FOMC made no changes to policy at that meeting, the tone of the Fed's discussion could impact the market more significantly than recent Fed meetings. In particular, we will be looking for 1) how concerned members are over recent signs of slowing in the US recovery, and 2) what, if any, additional policy measures they may be considering. On the latter point, any discussion that suggests a majority favors a resumption of asset purchases (buying Treasury or mortgage) if the US outlook weakens appreciably further could see US yields drop lower, pressuring USD/JPY most directly. Depending on the level of concern expressed on the US outlook, risk sentiment in general could be seriously undermined, potentially triggering renewed weakness in risk assets overall (stocks, commodities, and JPY-crosses like AUD/JPY, CAD/JPY and NZD/JPY). As well we will be looking at revisions to the Fed's central tendency forecasts for GDP, unemployment, and inflation. Significant downgrades to those forecasts could have a similar negative effect on risk assets.

Trading Strategy: One day ahead of the FOMC minutes, risk assets are at their best levels in many weeks and seemed poised to extend gains on better corporate earnings, while the USD is under pressure more broadly. US June retail sales are due up in early NY hours and may set the initial tone for risk asset performance. If the FOMC minutes do not contain significant discussion of concern and caution, and economic forecast revisions are relatively minimal, then risk assets may extend gains further. However, if the minutes suggest the Fed detects a more rapid slowing in the US recovery and revises economic estimates more sharply lower, we would anticipate a more tangible setback to risk trades and look to enter short JPY-cross positions at then-current market levels.

A Marco Look At 3 Major Asset Classes Heading Into Earnings Season - Setting Up To Fail?

We are noticing some interesting price action so far in New York with a very risk-ON feel. Perhaps Alcoa's earnings announcement that they beat analyst's expectations is setting the tone that this earnings season will be a good one. The markets should continue to respond positively provided companies continue to meet or exceed analyst's expectations on the top line figures. Now, the real question is whether or not increased earnings will provided employers the confidence that we will first, skirt a double dip recession and second, begin re-hiring the 9.5% of this country's unemployed workforce.

For now I will leave that alone as to speculate on business confidence is futile. Let's look to see how markets are setting up on a macro level heading into this earnings season. I have overlaid the 3 best representations of the 4 major asset classes to gain perspective on just what the risk appetite is on the street. We are looking at daily chart of the S&P 500, the US 10 yr bond yield, and the US Dollar Index. All are lined up to cover the exact same period of time. A quick look through the lens of elementary technical analysis shows the sustainability of this Risk-ON theme will be very shortly put to the test. All the major markets shown are testing key technical levels, which if broken, have implications of a stronger risk appetite for the next several weeks .

The two markets that will push higher with a strong risk appetite are the S&P 500 and US 10 Yr yield. The S&P is testing key trendline resistance at 1100, as the 10 yr yield is facing significant resistance 3.11%. A break higher in both markets sets the tone for higher prices in coming weeks. In a healthy risk environment the US Dollar index should sell off in favor of international growth currencies that will benefit in a stronger global economy. The USDX is threatening to close below key trendline support at 83.50 as I type.

I will be closely watching the tape to see what the mood is around these highly visible technical levels. The reaction from or through these levels will set the tone for our day-to-day trading for coming sessions .

weekly overview

Risk markets rebound, but sentiment lacking conviction

After dropping to recent lows at the end June, risk assets have regained most of that lost ground, but there are some noteworthy differentiations that suggest caution and a lack of conviction continue to dominate. In terms of recoveries, the S&P 500 has effectively recovered all its losses since the end of June, and is now re-testing the key 1075/80 breakdown area, now resistance. In bonds, US Treasuries yields are up off their lows, but still below the key technical resistance (prior lows for the year) between 3.05/3.10%. For stocks and bonds, those resistance levels remain the triggers to a further risk rebound. In commodities, the recovery has been more muted, with the CRB Index having regained only about 2/3rds of its losses since the end of June, which is potentially suggestive of a correction rather than a rebound. More fundamentally, a lesser rebound in commodities suggests ongoing concern that the global recovery is stalling. Declines in the Baltic Dry Index to lows not seen since May 2009 underscore the outlook for weakness in commodity demand.

In currencies, the notable shift is more pronounced USD weakness, with the USD index having fallen for the last 5 weeks straight. Weakness in the buck is due to consistently disappointing US data over that period, which highlighted concerns that the US recovery is stumbling. An increasingly likely US slowdown, in turn, jeopardizes the broader global recovery, which explains the back and forth in risk assets over the last few weeks. In the JPY-crosses, the rebounds closely mirror those seen in US shares, with losses since the end of June simply being recouped rather than surpassed. Clearly, conviction is lacking across all asset classes and that suggests short-term flexibility in positioning remains essential.

In terms of shorter-term trading direction, we are clearly at a crossroads, where recoveries above risk resistance levels cited above could trigger additional follow-through. In FX, strength in EUR/USD above the 1.2720/30 area is the equivalent trigger and represents a break of the entire downtrend from Nov. 2009, and a likely new phase of USD weakness. In the bigger picture, though, risks remain tilted toward further weakness as the developed economies remain burdened by high unemployment and impending austerity measures/fade out of stimulus. In that sense, we view the rebounds of the past week as more of a correction and continue to see gains in risk assets as selling opportunities. However, we are mindful of still heavy risk-averse positioning (e.g. short-EUR, long USD, short JPY-crosses) and with it the potential for a further squeeze higher and thus we would suggest relatively tight stop losses just above the past week's highs.

Stress tests dominate attention in Europe

Initial enthusiasm that most banks would pass the stress tests outlined by the Committee of European Banking Supervisors (CEBS) on July 7 quickly dwindled as fears rose that non-stringent tests would fail to bring sufficient transparency into the banking sector. The banks will be tested against macro-economic scenarios; the most adverse of which will assume a 3% deviation in GDP from the EC’s forecast over a 2 year horizon. A shock on interest rates to reflect a possible deterioration in the EU government bond market will also be included. However, there is plenty of debate on whether the haircuts made to government bond holdings will sufficiently reflect potential risks; some investors are unhappy that the CEBS has apparently ignored the possibility of sovereign default. EU officials have moved quickly to offset concerns over the credibility of these tests, but doubts are likely to persist at least until the publications of the test results on July 23, and possibly beyond. The fact that German Landesbanken and Spanish savings banks are on the list of banks that will be tested suggests that the authorities are not deliberately avoiding the institutions considered to be among Europe’s weakest. By implications, however, the market will be expecting some of these banks to fail if the tests are to be perceived as sufficiently credible. The EC has reassured the markets that the EU is well prepared to deal with this situation, but uncertainty over the results could leave the EUR unsettled in the coming weeks.

Double dip a done deal?

Earlier this week the S&P 500 was down 15% from its April 2010 high. The ongoing debate on whether the US economy is poised for a double dip recession can be linked with these falls. At present there is insufficient evidence to conclude that the US economy will fall back into recession, though there are signs that the recovery could be losing momentum. A key question is whether the adjustment in asset prices seen since the end of April has been appropriate. Proponents of double-dip imply that asset prices may have further to fall. In contrast, die-hard bulls suggest that equity valuations are looking cheap. In the past few sessions, the bulls have been gaining the upper hand.

The reining in of government fiscal incentives and in many cases the implementation of austerity measures suggests that economic growth in most of the developed world will be constrained for the next few years. The release a month ago of the much worse than expected May US Labour report was followed by a bout of poor US housing and confidence data that had the effect of triggering a wide scale debate about the prospects for double dip recession in the US. The guts of the June US employment report did little to dissuade this speculation. Average hours worked in June fell and 652K people gave up looking for work; during the early stages of an economic recovery the labour market usually expands. That said the data were not bad enough to suggest that double dip is a done deal. Private sector payrolls managed to expand by 83K. While this was less than expected an expansion in private sector payrolls tends to be a precursor to economic expansion.

Adding to evidence that the US expansion remains in place is the steady expansion in the US industrial production index from its mid 2009 trough. Retail sales have been more volatile, but the underlying trend in the index also suggests improvement. As it stands, double dip in the US would seem unlikely. In Germany, sentiment has been affected by concerns over the strength of the European banking sector. That said German factory orders and industrial production have been on a clear upward trend, pulling in new workers along the way.

The industrialized world is still struggling to fully overthrow the constraints of the financial crisis. The slow-to-moderate growth in money supply data in many countries continues to illustrate that the banking sector is not yet fully healed and that the process of balance sheet repair continues on both a corporate and consumer level. The US, Spanish and Irish housing markets are far from recovered; in the UK it remains wobbly. The pace of economic growth in 2010 and 2011 for many developed countries will be relatively low compared with their averages of the past decade. That said, growth is likely to be sustained suggesting that fears over double-dip are likely overdone and that equity markets and other risk assets may find support.


GBP shows a little resilience

Relative to the EUR, sterling has now unwound all of its post-June 21 budget gains. These gains had made the pound susceptible to poor economic news, sterling’s resilience in the face of poor trade data released July 9 suggests there is more investor interest in establishing sterling longs at current levels and that sterling may again become more sensitive to stronger economic data than to bad. Technical resistance lies at EUR/GBP 0.8430, assuming this holds EUR/GBP could be poised to resume its downtrend.


Key data and events to watch next week

The calendar in the US is modestly heavy in the week ahead. No data on Monday but Tuesday kicks off with the IBD/TIPP Economic Optimism Index. The data slate on Wednesday is the heaviest of the week with Import Price Index, Advance Retail Sales, Business Inventories, and the FOMC Minutes to wrap up the day. Thursday sees June PPI, weekly Jobless Claims, July Empire Manufacturing, Industrial Production, and the July Philadelphia Fed Index. Friday wraps up the week with June CPI, May TIC data, and U. of Michigan Consumer Confidence.

Eurozone data is relatively light. EZ Finance Ministers will meet in Brussels on Monday where they are expected to outline their planned responses to the results of EZ bank stress tests. Tuesday sees the ZEW survey of economic sentiment along with EZ CPI and Industrial Production on Wednesday. Friday caps off eurozone data with EZ Trade Balance. Tuesday will be the only day with data announcements out of Germany when the Wholesale Price Index and German ZEW survey of economic sentiment will be released.

Data out of Tokyo is moderately busy kicking off with Industrial Production, Capacity Utilization, and Consumer Confidence on Tuesday. Wednesday will have the BOJ Monetary Policy Meeting followed up with the BOJ Target Rate on Thursday. Additional data on Thursday has June Machine Tool Orders and the May Tertiary Industry Index. Capping off data releases for the week will be June Nationwide and Tokyo Dept. Sales numbers on Friday.

The UK starts off a significant week of data with final 1Q GDP, Current Account, BRC June Retail Sales Monitor and the RICS House Price Balance. Tuesday sees CPI, RPI, and DCLG UK House Prices. Thursday wraps up the week’s data with Claimant Count Rate and Jobless Claims Change.

Data out of Canada is light with Manufacturing Sales and Leading Indicators to be released on Thursday and Friday, respectively.

The calendar down under begins with NAB Business Conditions, Westpac Consumer Confidence, and DEWR Skilled Vacancies on Tuesday. Wednesday ends the week of data with New Motor Vehicle Sales. New Zealand releases Food Prices on Monday followed up with REINZ House Sales and Retail Sales on Tuesday. Business NZ PMI is up on Wednesday while Consumer Prices rounds out the week on Thursday.

China kicks off the data early with June's Trade Balance report set to be released on Saturday. The rest of the releases are all slated for Tuesday when we will see 2Q GDP, PPI, Money Supply, and Industrial Production.

Top Down Analysis on the GBPUSD

I was driving home from San Francisco on 17 hw after watching the National Asian Beauty Pageant. When I saw a car parked in the middle of the freeway at 2 am. I could not avoid it, slammed into the car and hit the barricade, stayed in hospital for 2 days. Now here I am...

Let’s start the week with a quick update on Friday’s SOTD, “Top Down Analysis on the GBPUSD”. I tried to switch things up a bit by providing a step by step description of my trading considerations while leaving the final analysis and levels up to you, although bearish price/momentum divergences and fundamentals were implied.

Market developments since Monday have seen these bearish implications play out with risk seemingly coming back off the table. Strong Q2 results could prove to be an obstacle towards continued risk aversion though these earnings results tell more about the past than the road ahead. Considering the likelihood that Q2 profits may be driven by stimulus spending, census hiring, and businesses restocking inventories; sentiment seesawing back towards risk aversion is foreseeable. The expiry of the home-buyer tax credit and its negative effect on housing numbers, continued woes out of the US jobs market, and sovereign debt concerns in Europe are forward looking indications that slow growth and risk aversion may continue to headline markets in the coming quarter.

Turning back to the charts, GBPUSD broke below the rectangle consolidation pattern and trendline support to a low near 1.4945. Early NY trading saw the pair test near 1.5075(50% retracement of the recent leg lower) and turn back to trade right back down to the figure. As Friday’s post provided the analysis but left the decisions to the readers, hopefully there were those who were able to take advantage of these moves from Sunday’s open on. The chart below outlines these moves and current levels. Trendline resistance on RSI has helped cap this recent correction higher. 1.5075 has proved to be a key level as the retest of the breakout level and coinciding fib level capped the aforementioned correction. Resistance should be seen into it, ahead of 1.5105(61.8% retracement level) with the 100 and 200 hr SMAs hovering slightly above into 1.5117 and 1.5124, respectively. On squeezes higher, I’d look for these levels to provide short term resistance and subsequent sell zones. Price projections on the rectangle consolidation break are for a move into 1.4925. Below 1.4925 may see 1.4875 hourly trendline support retested.

Trading Market is close, see you on Monday

SOTD UPDATE: Rallying to an Exhaustion

AUDJPY price action saw 77.80 resistance hold like a rock overnight, triggering entries for the SOTD yesterday. Bearish price/momentum divergences are still intact, Ichimoku cloud base comes in at 77.75 providing additional resistance, and benchmark US equity futures are currently in the red. At the moment, AUDJPY is down to 77.25, back below its 21 hr sma(77.46) which had guided the recent move higher. Thats a good +40 pips in the green so going into the US equity market open, positions are still valid. I'll most likely be looking to cover before end of day/week which I will update as the day moves on.

The bad news, Lebron James is going to Miami. I digress but I needed an outlet for my disappointment. Now back to the SOTD.

Risk appetite appeared to be gaining ground in Asian hours but the FTSE 100 index has given back many of its opening gains since the start of the London session. Similarly the EUR is softer with selling pressures capping EUR/USD at 1.2720 early in the session. Mirroring the step back from risk, the JPY is also a touch stronger on the crosses, though AUD/JPY has found solid support at 77.20.

The better tone noted in stocks this week can be explained as a corrective reaction to the strong losses registered since April. At the start of this week, the S&P 500 was down 15% from its April 2010 high. Even though stocks have been climbing this week, overall evidence that risk appetite is returning has been patchy; with the bond markets looking mixed despite the better tone in stocks. In all it seems that investors are unconvinced about the potential for further gains in risk near-term. While fears over a double dip recession in the US are likely to prove overdone, there is still plenty scope for negative news in the coming months. Firstly the market needs to come to terms with the likelihood that growth in the industrial world is likely to be relatively slow during the next few years. Also expectations regarding the potential for Chinese growth this year are currently being moderated. Added to this, the impending publication of stress tests for European banks could yet create difficulties for the EUR.

Speculation that European stress tests would not be tough enough to trip many banks was linked to gains in banking stocks yesterday. This enthusiasm, however, may be short-lived. The market has been demanding stress tests as a means of increasing transparency. If tests are not tough enough the current suspicions that are hindering the ability of some banks to fund themselves in the open market could persist. In effect this could prolong negative risk for the EUR. In an effort to offset talk about soft stress tests, this morning EC President Barroso has commented that the stress tests are credible. He also reassured the market that the EU will be available to help if the stress tests produce casualties. Until the results of the tests are published, the market is likely to be wary of aggressive long positions on the EUR. That said Euribor has edged higher again this morning. While this supportive of the EUR, ECB President Trichet yesterday made it clear that there was no intention by the ECB to signal higher rates. Money market conditions have been usually volatile due to last week’s expiry of the June 2009 ECB EUR 442 bln loan, though conditions are likely to settle in the forthcoming week.

Sterling has clawed back some ground vs the EUR this morning despite disappointing trade data and softer than expected PPI. The total trade balance widened to its worse level since before the financial crisis, throwing cold water on hopes that the weaker position in sterling over this period would produce an export led recovery for the UK. While there are signs that the German economic recovery is gaining ground, the relatively soft position of the Eurozone demand is weighing against a strong recovery in UK exports. Meanwhile imports have strengthened suggesting UK domestic demand may be recovering. PPI data were softer than expected. This should help sooth fears that underlying inflation pressure in the UK are rising. While sterling turned lower vs the USD on the release of these data, EUR/GBP was dragging lower by the softer tone in EUR/USD .

Canadian employment data and housing starts are due this afternoon

Selling EUR/USD on European Growth, Bank Concerns

EUR/USD

Support

1.2500 55-day moving average

1.2410 Daily Ichimoku Tenkan line

1.2330 21-day moving average

Resistance


1.2675 May 21 intraday high

1.2750 Daily trend line resistance from Dec. 2009 1.51/52 highs

1.2900 Daily Ichimoku cloud top (declines to 1.2785 by July 12)

Comments
EUR/USD has seen a corrective rebound which looks to have formed a potential 'bear flag' channel, a counter-trend consolidation pattern. The pair is also within about 100 points of a key daily down trend line that has defined EUR/USD's decline since the end of 2009. There also is the possibility that EUR/USD is forming an inverse head and shoulders pattern, possibly representing the end of the down-trend. Given the choice between the two, I'm inclined to favor the bearish scenario of the EUR eventually turning lower given the still bleak fundamental outlook for the Euro-zone. The key resistance levels above also make for a relatively limited risk set-up.

The Strategy this week will be to sell half of a short EUR/USD position at current market levels (1.2640/45) and to sell the second half at 1.2730, just below the key daily trend line, for a short average of approximately 1.2685. The stop loss will be on a daily close above the down trend line at 1.2750 (and declining) or if 1.2800 trades at any time, for a total risk of about 115 points. The take profit objective will be for 50% at the 1.2330/40 21-day mov. avg. (which is rising), and the remaining half will be kept open for a potential break below the bear flag base at 1.2250 (and rising). Stops can be adjusted lower to 1.2550 on a drop below the 1.2490/2500 level.

Rallying to an Exhaustion

Risk appetite returned with a vengeance as benchmark US indices rallied to close above key levels yesterday. Stocks in Europe continued this fierce rally as they gained upwards of 1% over the London session, sending yen crosses screaming higher. Glad I stayed put yesterday on the allure to try selling EURJPY resistance into the 110.85 level as that play would have been hammered. On a fundamental basis, not much has changed from when market sentiment dominated headlines last week. The markets just seem to be on a perpetual see-saw ride between risk aversion and appetite. That being said, patience and discipline yesterday has allowed us to look to try and take advantage of this risk see-saw which leads me to the AUDJPY.

Although equities are trading up today, albeit barely, gold which has been wearing the risk asset hat as of late is sliding lower, down -$6. On a fundamental basis, the situation in Europe is unchanged as is the declining GDP of China and the US’ labor situation. It seems this squeeze higher could be a potential opportunity to jump back in short risk.

That finally brings us to the AUDJPY. Lower gold along with stocks teetering between positive and negative territory brings me to believe that this move higher in yen crosses may be overextended. There are some key technical levels in play here that push AUDJPY to the forefront amongst other yen crosses. On the daily and 4 hour charts, the 78.00 level sees daily trend-line resistance converging with 2 alternate levels: broken bear flag support which should now serve as resistance along with .618 retracement of the 80.85 to 72.85 leg lower.

The hourly chart provides a few more indications of potential exhaustion on this surge higher. AUDJPY made new highs as the MACD and RSI did not confirm giving signals of bearish price/momentum divergences. Short opportunities should arrive on a rebound back into the 77.75 to 78.00 zone. Staggering entries, half a position at 77.70 and the other half at 78.00 with stops above prior highs into 78.58, would provide an average rate of 77.85. Downside targets on this setup would be slightly above the 38.2% retracement level at 76.00 for half the position and a retest of the key 75.10 level for the rest. Risk/reward is 2.5:1 at a minimum on the first target. Unfortunately, as I was putting the SOTD together, AUDJPY has already dipped down to the 77.00 level. Due to the fast moving nature of FX markets, on the next post, I will be taking the liberty to write up a quick setup first and have charts follow. As usual, I will be updating this post with developments

NY Session

Stocks exploded today sending the benchmark US indexes to their highest levels since May. The DJIA ended up +274.66 to 10018 and the S&P closed higher +32.21 at 1060. Retailers advanced on the International Council of Shopping Centers comments that sales were growing at the fastest pace since 2006. Financials rose on State Street Corp’s Q2 operating profit beating estimates. Concerns that consumer confidence would undermine the economic recovery were put to rest as risk appetite returned with a vengeance across all risk assets. Gold closed up +$10 at $1203, crude oil ended up +2.82 to $74.78, and US bond markets ended lower as 2 and 10 year yields rose 1 bp and 5 bp respectively.

With risk being put back on the table, the US dollar was weaker across the board. EURUSD tested its recent correction high around 1.2665 but closed down under 1.2650. AUDUSD surged above the .8500 level to close near its 55 day SMA around .8646. Reports of Eurozone bank stress tests designed to gauge banks' strength assuming a haircut of 17% on Greek debt may have given confidence to the market. This may be a false confidence, given that credit markets are pricing in losses of 60% via recovery swap trades. It seems the stress tests for European banks may not be rigorous enough but market reaction to date has been muted. The next major market events are the ECB and BOE meetings on Thursday for which no policy changes are expected.

Upcoming data releases out of Asia Pacific sees June Australian jobs reports at 21:30 GMT. Japanese data sees June Machine Orders (MoM) and Machine Orders YoY% along with the June Current Account to be released in the Tokyo session.

Confluence of SMAs

Yesterday’s AUDJPY analysis should now be flat. Initial entries into 74.95 with price projections into 74.05 were hit overnight for 90 pips as financial austerity measures in Europe and likely liquidity tightening from the PBOC put a damper on risk and brought the yen crosses tumbling lower. Yields on 10 year US treasuries continue to move lower, now trading into the 2.93% area suggesting investors/traders still have fundamental concerns about global growth prospects.

Simply put, risk aversion leads investors to seek out safety which comes in the form of bonds or US treasuries which are considered to be risk free assets. This in turn leads to bond prices moving higher on higher demand and subsequently, the inverse relationship between bond prices and yields pushes yields lower. Thus, when looking at the barometers of risk, yields on 2 yr and 10 yr treasuries are ones that as traders, we simply cannot ignore.

As I scan the charts pre-US equity open, the most intriguing one at the moment is the hourly EURJPY. A confluence of SMAs(21, 55,100 hr) have converged into the 110.00 area. Trend-line support from the 107.50 lows in late June has also been broken to the downside after holding resistance at the neckline of an inverse H&S pattern into 110.80 thus providing technical confirmation of a potential near term downside break.110.00 EURJPY looks to be a good price point to initiate a short with stop losses above the confluence of SMAs into 110.42 and price targets at 109.16 for a risk reward of 2:1. I will be providing updates as the day moves along as it is important to update levels especially with short term moving average and trend-line analysis

EUR bounces and the USD sags

The Euro came storming back in a massive wave of short covering on the first trading day of July and a day before US employment data was released. The ostensible basis for the rebound was the successful 3 month ECB refinancing operation (more below), but a more likely explanation was extreme EUR short-positioning. The first clue is that the EUR's gains came against all major currencies, but the biggest losers vs. EUR were those with the largest short positions: CAD -2.66%; USD -2.59%; and AUD -2.29%. Perhaps most strikingly, the price of gold denominated in EUR fell nearly 60 EUR or almost 6% and those in silver almost 6.7%. The second clue was the supposed easing of funding tensions in Eurozone money markets. While it's true that the 3-month refi saw only about EUR 130 bio taken, less than the expected EUR 250 bio, it's also true that the following day's 6-day auction saw more than EUR 110 bio taken up, bringing the total rollover of ECB financing in the past week very close to the expected demand. It may be that Euro-area banks have simply opted for shorter-term borrowings in light of ECB pledges to keep unlimited funding in place, but it's still clear that financing for European banks remains problematic. More tellingly still is that Euribor lending rates jumped the most in a single day since the height of the financial panic (Oct. 2008) and to the highest since last fall. Clearly, the European banking sector remains stressed.

The next key event will be from the middle of July onward, when the ECB is expected to make known the results of the so-called 'stress tests' of Euro-area banks. While there are many variables involved, the most likely outcome is that regional lenders (e.g. the Landesbanken in Germany and the Caja's in Spain) will be judged to need significant state-sponsored recapitalizations, while the larger international banks may get a clean bill of health. The latter could see some relief in markets, but if the necessary recapitalizations (or potential insolvencies) are large enough, the new burden on government budgets is likely to outweigh and hurt the EUR on debt/deficit concerns.

While the EUR has additional potential higher while daily closing prices hold above 1.2450/1.2500, we think the move higher will be short-lived and prefer to use further strength as a selling opportunity. In particular, the daily Ichimoku cloud bottom is key daily close resistance at 1.2594 (it falls to finish next week at 1.2431), where a daily close above would put our view in doubt. The weekly Ichimoku Tenkan line at 1.2619, the first line of resistance, contained the past week's EUR/USD rally (high of 1.2610/15), so that is another source of resistance to keep an eye on. Friday's price action (at this writing, at least, 4 hours before the close) looks to have made a spinning top on the daily candles, a sign of uncertainty after the prior day's move up, and a potential reversal signal. The price action on Monday and Tuesday will be very important to determine whether the EUR recovery is for real or what we think is a flash in the pan.

The USD also experienced notable weakness throughout the past week as US data consistently disappointed and traders positioned for an anticipated weak US jobs report. US Treasury yields fell to new lows for the current decline, adding pressure to the buck, especially against the JPY. But 10-year US Treasuries showed some signs of stabilization at the end of the week and may be basing out above 2.85/90%. USD/JPY will remain mired below 88.50/89.00 while yields are below 3.00%, and in the current environment of risk aversion, it's difficult to contemplate a sudden rebound in sentiment or yields. In fact, just the opposite seems more likely, with 10-year yields falling further to 2.70%, and sending USD/JPY down towards 85.00. Which raises the question of when the 'USD as safe-haven currency' will re-establish itself? If risk sentiment continues to deteriorate, which we think likely, we can easily envision USD/JPY moving lower, while the USD strengthens against other currencies (except CHF), resulting in further downside for the JPY-crosses (AUD/JPY, CAD/JPY, EUR/JPY, GBP/JPY and NZD/JPY).

Risk retreat accelerates on China, US

Risk assets saw marked declines in the past week, with stocks falling sharply, the CRB commodity index losing nearly 4%, and JPY crosses all lower (with the exception of EUR/JPY). The reasons are quite clear with stagnant Eurozone growth/banking sector concerns and new evidence of a faltering US recovery. In last week's note, we argued that the global recovery was in greater jeopardy now that the anemic US rebound looked to be joining Europe/UK as a drag, with China and Asia left as the main pillar of demand. We can now add China to the club of slowing recoveries and this obviously strengthens our view that risk sentiment is likely to deteriorate further in the weeks ahead. In this environment, commodity currencies (AUD, CAD, and NZD) will likely continue to suffer and we find it very difficult to see how EUR and GBP can avoid further weakness either. While the USD-index has indeed suffered some damage, and many analysts are calling for further declines, we think the USD may surprise with a quick rebound. But rather than swim against a potentially new tide against the USD, we will wait for some evidence of a reversal, and we would highlight early next week as a critical time. If the USD rebounds on Monday/Tuesday, we'll take it as a sign that this past week's moves were the anomaly and that recent correlations are reasserting themselves.

ECB refinancing center stage; banking woes likely a more durable concern

Money market activity has been a central force in both European fixed income and FX markets this week. Its impact may lessen in the coming weeks but it is likely to remain a prime focus near-term. It was the expiration of last June’s ECB 12 mth EUR442 bln allocation that created the unease. The 12 mth loan was part of the ECB’s package of emergency measures aimed at ensuring ample provision of liquidity at the height of the financial crisis. This year the ECB has committed itself to withdrawing emergency liquidity measures. The 12 and 6 mth 1% loans have been withdrawn with declining demand for funds noted at the most recent 6 mth allotment. While conditions in the inter-bank market had eased by the end of last year, in recent months fears that some European banks could be saddled with non-performing loans have led to increased tension in the money market. Reports that some banks are having difficulties funding themselves in the open market have coincided with an increase in speculation that the ECB remains the prime source of funds for some financial institutions. This implied that the withdrawal by the ECB of its emergency liquidity provisions could thus trigger difficulties for some banks.

In the refinancing, the 3 mth 1% loan which was scheduled to coincide with the expiration of last June’s 12 mth loan created much lower than expected demand for funds; EUR 131.9 bln was lent. That said, the fact that the allocation was spread among 171 bidders and the 1% interest rate was much higher than the interbank rate suggests that all is not well. Also worrying is that the ECB followed the 3 mth loan with an EUR 111.2 bln 6 day loan also at 1% which also suggests that things are not all as they should be. In reaction to these money market operations 3 mth Euribor jumped to 0.782%; the highest rate since Sept last year and the biggest daily gain since October 2008, when strains in the US banking sector were at their peak. Yields on the 2 yr German note coincidentally jumped by 9 bps and 10 yr bunds yields also saw upward pressure. This upward pressure on rates may be giving the EUR some short-term support. However, insofar as it coincides with fears over the strength of the global recovery the timing is poor and the ECB need to tread particularly carefully in its management of liquidity in the coming weeks. On the assumption that the ECB have no desire to signal tighter policy via money market operations, concerns over the health of some European banks is likely to be a more durable influence over the summer suggesting that the EUR is likely to remain under pressure on a 3 mth view. That said, with focus on money markets the July 8 ECB press meeting could be another colourful event.

Steady policy for the BoE, but the inflation debate rages

The BoE is not expected to alter policy at the July 8 meeting. That said two MPC members have made known their inflation concerns over the couple of weeks. Most notably Sentance voted for a rate hike during the June meeting. Since then Posen has noted a slow upward creep in inflation expectations. The depth of concerns over inflation within the MPC will not be known until the publication of the minutes but the fact that this debate exists will make sterling particularly sensitive to all inflation indicators suggesting the PPI release could garner more attention than usual. Now that the initial impact of the government’s austerity budget is past movement in the sterling crosses are likely to be more heavily impacted by movements in EUR/USD. Upside in EUR/GBP remains constrained by resistance in the 0.8275/8300 area. A break above could lead to some short term gains for the EUR. That said, with European banking concerns set to weigh on the EUR this summer, EUR/GBP may continue to trend lower on a 3 mth view.

June 23 FOMC Rate Decision

Summary Outlook: On Wednesday, June 23, the US FOMC is widely expected to hold rates steady at between 0.00-0.25% and will also likely repeat the pledge to maintain exceptionally low rates "for an extended period." The focus will then fall to the economic outlook and the prospect for an upgrade to the Fed's outlook seems most unlikely (see below). To the extent that a steady Fed policy could be considered supportive for risk assets, markets may respond by buying risky assets (stocks, commodities, and JPY-crosses) in the short run. But if the Fed emphasizes a potentially stalling recovery or some backsliding in the data, the potential is for a risk adverse reaction. Overall, given the short-lived euphoria following China's revaluation announcement and the impending adoption of austerity measures in several key economies, we prefer to be sellers of risk assets on strength.

Trading Strategy: If the Fed statement emphasizes a potential stalling in the pace of US recovery, we think there could be a significant downside reaction in risk assets. Using AUD/JPY as a proxy for JPY-crosses, we would look to enter short positions on remaining strength in the 79.80/80.30 area; stop over 81.00; take profit objective 77.50/78.00 area. In USD pairs, a more negative outlook on the US recovery could see USD/JPY move lower and we would look for selling opportunities in the 91.00/50 area; stop 92.10; target 90.00/50. In EUR/USD, selling strength in the 1.2350/1.2400 area is our preferred approach; stop 1.2480; target 1.2050/2100.

Economic Analysis: In its last statement, the FOMC noted three areas of modest improvement over the March period. The first of those, labor markets, have shown minimal signs of further improvement since the April 28 statement noted labor markets are 'beginning to improve' vs. the March comment that they're 'stabilizing.' Weekly US jobless claims remain stuck at elevated levels above 450K and the paltry private sector job growth in the May NFP report suggests firms are still unwilling to hire in a meaningful way. A second area cited for improvement was consumer spending, which was upgraded from 'expanding at a moderate pace' to 'growth...has picked up...." In the interim, household spending actually declined as seen in flat April personal spending and the May retail sales ex-autos report (-1.1%), though there was a negligible gain (+0.2%) in retail sales ex-autos, gasoline and building materials, which feeds into GDP calculations. As such, it would be a stretch for the Fed to cite additional improvement in household spending. The last area in which the Fed saw improvement was in housing starts, which were seen to have 'edged up' from a prior view of 'flat.' In May, housing starts missed the mark and fell -10.0% MoM, suggesting significant backsliding in housing data. As well, Fed officials have noted the likely deterioration in housing data in the months ahead, as the impact of home buyer tax credits vanishes. On balance, then, we see few areas for the Fed to cite as improving, with considerable potential for the Fed to note some plateauing in signs of the recovery, more than justifying a steady policy outlook for the foreseeable future.


Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

June 2010 US Employment Report

Summary Outlook: On Friday, July 2, the US will report a +110 increase in private sector payrolls (prior +41K) and an increase in the unemployment rate from 9.7% to 9.8%, according to consensus forecasts. Due to US Census layoffs, the change in non-farm payrolls (NFP) is expected to register -125K (prior +431K), but the market focus will likely stay on the private payrolls number as the best indicator of labor market developments. Given the spate of weak data globally in advance of the jobs report, and in anticipation of anemic job creation in June, markets have spent the week pricing-in a bad result. As such, we think the risks are now biased to a 'risk positive' reaction if the private payroll number is close to expectations (e.g. +70/+120), and lean toward a more pronounced rebound in risk assets (stocks, commodities, JPY-crosses) if private payrolls exceed forecasts (e.g. >+120K). Only a private payroll number close to or below the May number is likely to see risky assets continue to decline. This is essentially a 'sell the rumor/buy the fact' outlook and is contrarian to the current market bearishness. As always, the revisions to the May report will be important, and we would factor them in directly for a net number to interpret the June data. (For example, if May private payrolls are revised +30K and the June number is +96K, we would interpret that as an addition of +126K for June, which would be above expectations and potentially risk positive.) The change to the unemployment rate is unlikely to have a significant impact as markets do not anticipate any meaningful improvement/deterioration in the months ahead.

Trading Strategy: Thursday's trading saw a massive short-squeeze in EUR/USD and all EUR-crosses, and the risk is for additional short-covering given the size of short-EUR positioning. If markets respond in a 'risk positive' fashion to the US jobs report, EUR would also likely still be biased higher. We remain bearish on EUR/USD overall and think we have come to attractive selling levels near 1.2500, but we're reluctant to commit in the current positioning-driven volatility. Instead, and In light of our expectations for an overall risk positive reaction, our preference will be to concentrate on buying AUD/JPY and CAD/JPY as risk trades on remaining weakness in the 72.50/73.50 and 81.50/82.50 areas, respectively; stops 50-70 points. A more conservative approach would be to note the pre-release level of those pairs, and if they decline in response to the data, but subsequently bounce and regain pre-data levels, longs could then be established with more confidence. If the private jobs number is below +50K, we would abandon those strategies. USD/JPY will set the tone for the JPY-crosses and we would look for an at/above forecast result to see USD/JPY move directly higher, while a reading below +50K would cause a quick drop. We would also note a long holiday weekend in North America and would expect trading activity to diminish sharply following the European close. As such, we would be active profit-takers/protective stop loss managers on any gains in JPY-crosses following the jobs data.

Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Asset and liability basics

Knowledge of accounts can make life much easy. If you are to invest in a new business or joining your forefather’s business, planning to take some loan, looking for job in any marketing company, desire to be the manager of a multinational company or have the onus to manage your own assets and liabilities, knowing some basics of accounts becomes mandatory.


Broadly, accounting is bifurcated into two categories-

Cash Bases Accounting

Accrual Accounting


The Cash Based accounting pertains to the management of an individual’s personal monetary transactions. In this case, he keeps a track of the money he withdrew, deposited, gave or received from someone etc. This accounting comes to life when actual cash transactions take place.

The Accrual Accounting requires an accountant who notes the transactions even if no money has been actually exchanged. This method works on the principle of comparing or seeing the ratio of the expenses to expenditure. If the expenditure is more, you need to cut down your luxuries, if not then it’s always good to have some savings for future. This type of accounting tells you the amount that you owed; this might not match with the figure of your bank balance.


In the language of accounting there are several key terms that one needs to be familiar with. Some of the crucial ones are discussed below-

The Assets- the assets are generally those possessions of an individual that have a good market value or are quite valuable. Assets are mainly classified into three types-
Current Asset- the cash is the most basic asset of any individual. The money that is being held in accounts like the checking and savings accounts is also included in the cash. Also inclusive are the marketable securities in the form of bonds, stocks, shares etc. The money lent or payments due from clients, even form a part of it.

Fixed Asset- comprises of all the tangible valuable things like property, machines, equipments, land and the like that are not meant to be sold.


Intangible Asset- incorporates all the untouchable things like copyrights, patents, trademarks etc. that have tremendous monetary significance.


The law of opposites governs the nature; where there are assets, there will be liabilities. These are the debts that you have to pay back to your creditors. This can be done through giving cash or any other asset like jewelry, some other goods etc. Liabilities again are of two kinds-

1. The Current Liabilities- the liabilities that are to be paid back within a certain time limit and most often through your current assets. These include the accounts payable i.e. type of bill that you have to monthly, the Notes Payable-loans taken from banks meant to be repaid within 30 days and the Accrued Expenses- the compulsory expenses like taxes, wages, interests etc. where the bills are not received but the balances of each must be repaid.

2. Long Term Liabilities- those debts that can be repaid at ease for the tenure is more then a month.



The Financial Capital- is the economic capital. It is any liquid medium or merchandise that stands for wealth or other styles or capital. There are four ways to manage and display the financial capital. First, this capital is needed when a contract is made with any sort of capital asset. The financial instruments work in the form of currency in case of sale, purchase or trade of goods i.e. the medium exchanges. Second, it works as a settled medium or mode like gold for the
Standard of Deferred Payment. Third, The Unit of Account has a market value attached to it which in turn varies with the economy of the country. Fourth, The Source of Value is concerned with financial capital that needs to be saved and recovered. It is a collection of things like gold, real estate, collectibles etc.


Petty Cash is an important factor in business. It is the smallest account within a business setting or the cash in bills and coinage required to pay little expenses.

Types of Business- there are several kinds of business one should be aware of like


Sole proprietorship- where a single individual who starts the business owns it too.

Partnerships- the companies or businesses started by two or more persons where they conjointly own it.


Corporations- involve lot many shareholders or investors who are responsible in taking decisions for the company.

Limited Liability Companies- can be said to be sisters of corporations. Here the business members are not under a legal obligation to pay the debts if the business fails.



Payrolls- the term payroll designates the manner in which you will be paying the employees of your company and even yourself. Many multinational companies cater to payroll service provider companies that do the work quite efficiently.


These are some of the broad guidelines that will help you grasp the basics of accounting. It is essential to have some such wisdom for accounts as it is fruitful in all walks of life.


About the author:
Mansi gupta writes about asset and liability Learn more at http://www.assetsandliabilitiesbook.com

An introduction to point of sale software

Point of sale software gives business owners a convenient way of checking out customers and of recording sales. It can keep a record of the store inventory, updating it when an order is processed. It can also print out receipts, carry out credit card processing, track customers, etc. Point of sale software eases the flow at checkout terminals, while recording all the information that can help you make better business decisions.

Point of sale software allows users to input via keyboard or mouse, and some even have a touch screen interface. You can install the software on your checkout register.

When checking out a customer you can either input the sales item yourself or use a bar code scanner. The point of sale software will look up the item in the inventory and bring up the price. It can also calculate tax on the item and change for the customer.

POS software can print out receipts and reports. Point of sale software makes your business accounting a lot easier by creating reports on inventory, sales, customers, etc. Since it is already recording each sale, it can easily tell you the sales and revenue of the day.

Point of sale software can also help with credit card processing. Credit cards are the preferred method of payment. People do not want to carry around cash for all their purchases. Credit card is a convenient method of payment and if you do not have credit card processing, your business can lose some of its competitiveness.

Point of sale software receives input from the POS hardware, which is the scanning station for the credit card. The software will process the credit card payment for you. It can check that the card has not expired and is valid. You will need a merchant account for the point of sale software to do its job.

POS software is generally easy to install and easy to use. You will need to know how to update inventory and record a price change for an item. Point of sale software usually provides an easy to use interface to do this. It can make the job of the cashier a lot easier by automating the routine tasks of the day.

There is a wide variety of point of sale software available. You can choose one that fits your budget and meets the needs of your particular business. The software will have compatibility requirements with the point of sale hardware. It will also have operating system requirements such as it might need a Windows or Linux system.

Point of sale software can more than pay for itself over time by making checkout faster and doing your accounting for you. Point of sale software may be the right solution for your business and can provide you with tons of benefits.

About the author:
Jakob Jelling is the founder of http://www.cashbazar.comVisit his website for the latest on personal finance, debt elimination, budgeting, credit cards and real estate.